FIN 201 Chapter One
If inflation is expected to be 8 percent, how long will it take for prices to double?
9 years
The major function of a financial plan is to
Achieve financial goals.
A financial plan is an informal report that analyzes past financial decisions.
False
A financial plan is another name for a budget.
False
Developing a budget is part of the "spending" component of financial planning.
False
Financial Plans are only created by financial planners.
False
Risks associated with most financial decisions are easy to measure.
False
Which of the following is correct?
Food and clothing are consumable-product goals
Tim Calibe received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house he plans to purchase in 3 years. What type of computation should he use?
Future value of a single amount
An investor should expect to receive a risk premium for
Higher potential earnings due to uncertainty
An advantage of personal financial planning is:
Increased control of financial affairs
The time value of money refers to
Increases in an amount of money as a result of interest earned.
If a $10,000 investment earns a 9% annual return, what should its value be after one year?
$10,900 $10,000 * (1 + .09) = $10,900
If a $10,000 investment earns a 9% annual return, what should its value be after 7 years?
$18,280
Annual earnings on a $2,000 Certificate of Deposit earning 3.15% would be
$63
The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.
Borrowing
The 'borrowing' activity in a financial plan relates to
Maintaining control of credit-buying habits
Many Americans have money problems because of
Poor planning and weak money management habits
Paul Jacoby wants to deposit money today for a vacation he plans to take to Asia after he graduates from Grad School. Which formula should he use to determine the amount of money he will have available for his vacation?
Present value of a single amount
Which of the following intermediate goals is stated most clearly?
Purchase a house with a mortgage no greater than $150,000 within 3 years
Which of the following goals would be the easiest to implement and measure?
Save $100 a month to create a $4,000 emergency fund.
An example of a personal opportunity cost would be
Time comparing several brands of personal computers.
John Jones was laid off of his job two months ago. He just received an offer for a position that pays 2/3 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.
Opportunity costs refer to time, money, and other resources that are given up when a decision is made.
True
Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.
True
When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.
True
To calculate the time value of money, we need to consider all except the
Type of investment.
The loss of a job is referred to as ____________ risk.
income
The rising of prices that causes changes in buying power is referred to as ____________ risk.
inflation
The changing cost of money is referred to as ____________ risk.
interest-rate
