College personal finance final Section 1

Many Americans have money problems because of:

poor planning and weak management habits

Changes in personal, social, and economic factors may require you to

review and revise your financial plan more frequently.

Susan Smith has a goal of "saving $25 per month for a TV". Considering the SMART approach, Susan's goal lacks

A time frame

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)

Financial Plan

Which of the following is an example of a financial opportunity cost?

Forgoing wages to attend school

Which of the following would increase the rate for a loan

-Poor credit rating!!!!!!!!!!!! -Higher down payment -Expected lower inflation -Lower consumer prices -Short time to maturity

Place the following steps for a personal financial plan in the proper order:

1. Determine your current financial situation 2. Develop your financial goals 3. Identify alternative courses of action 4. Evaluate alternatives 5. Create and implement your financial action plan 6. Review and revise the financial plan

The major function of personal financial planning is to

Achieve personal economic satisfaction

Who is less likely to be harmed by inflation?

Borrowers

Present value computations are also referred to as

Discounting

A financial plan can only be created using a money management software package

False A financial plan can be created on your own or you can see assistance from a financial planner or use a money management software package.

A financial plan is an informal report that analyzes past financial decisions.

False A financial plan is a formal report that summarizes your current financial situation, analyzes financial needs and recommends future financial activities.

Opportunity costs refer to money already spent.

False An opportunity cost in what a person gives up when a choice is made.

As borrowing by consumers and businesses increases interest rates are likely to decrease.

False As borrowing by consumers and businesses increase, it is more likely that interest rates will increase. Interest rates are the 'price' for money and as the demand for anything increases, relative to supply, price will increase.

Financial plans are only created by financial planners.

False Financial plans are created by individuals as well as by financial planners or by using a money management software package.

Inflation is most harmful to people with incomes expected to increase.

False Inflation is most harmful to people with fixed incomes.

Intermediate goals are usually achieved within the next year or so.

False Intermediate goals have a time frame of 2 to 5 years.

Purchasing an appliance is an example of a consumable-product goal.

False Purchasing an appliance is a durable-product goal.

There are only 3 methods of calculating time value of money.

False There are 5 methods of calculating time value money: formula calculation, time value of money tables, financial calculator, spreadsheet software, and websites/apps.

Risks associated with many financial decisions are easy to identify and evaluate.

False These risks are difficult to identify and evaluate.

Paul Davis wants to deposit money today for a vacation that he plans to take to Asia after he graduates from Graduate School. Which formula should he use to determine the amount of money he will have available for his vacation?

Future value of a single amount

Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?

Future value of a single amount

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?

His credit rating is below average which results in a higher interest rate.

To develop financial goals, one should

Identify specific, realistic goals that are measurable along with a time frame and an action plan

The rising or falling of prices that cause changes in buying power is referred to as __________ risk.

Inflation

Which of the following long-term goals is stated most clearly using the SMART approach?

Invest $50 per month for the next 12 years for my nephew's college fund.

The goal of investing $50 per month for the next 12 years for your nephew college fund is a(n) ___________ goal.

Long-term

Increased consumer saving and investing is likely to be accompanied by

Lower interest rates

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

More

Robert Brown is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finas a substitute for his shift so he can attend the concert, what kind of cost is he incurring?

Person opportunity cost relating to time

Which of the following intermediate goals is stated most clearly using the SMART approach?

Purchase a house within the next 5 years with a mortgage no greater than $150,000

Which of the following goals would be the easiest to implement and measure?

Save $100 a month to create a $2,400 emergency fund in 2 years.

The financial activities for a young, single person will probably be the same as those for an older couple with no dependant children at home.

Specialized financial activities differ for a young single versus an older couple without children.

The consumer price index measures:

The average change in prices of a fixed basket of goods and services of urban consumers

An example of a personal opportunity cost would be

Time comparing several brands of person computers.

Jim Johnson was laid off from his job two months ago. He just received an offer for a position that pays 3/4 the salary of his old job. Why should he set up a financial plan?

To increase the effectiveness of obtaining, using, and protecting his financial resources.

An opportunity cost is what a person gives up when a choice is made.

True

Inflation is a rise in the general level of prices and it reduces the buying power of the dollar.

True

Inflation is most harmful to people with fixed incomes.

True

Personal opportunity cost refer to resources, such as time health, and energy, that are given up when a choice is made.

True

Purchasing a car in an example of a durable product goal.

True

Short-term goals are usually achieved within the next year or so.

True

The life situation of a household includes a combination of person factors such as age, income, household size and personal beliefs.

True

personal financial planning is the process of managing your money to achieve personal economic satisfaction.

True

When prices are increasing at a rate of 4 percent, the cost of products would double in about 18 years.

True Use Rule of 72 (72/4=18 years)

To calculate the time value of money, we need to consider all of the following except the

Type of investment

The Rule of 72 is:

Used to estimate how fast prices will double using a given annual inflation rate

Which of the following short-term goals is states most clearly using the SMART approach?

Within the next 6 months, but a car for less the $15,000

Future value computations are often referred to as

compounding

An advantage of effective personal financial planning is:

increased control of financial affairs