FIN 3325 Exam 1
The difficulty of converting savings and investments to cash is referred to as ____________ risk.
Liquidity
Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?
Liquidity ratio
If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?
$1000
The saving component of financial planning focuses on long-term security and includes:
A regular savings plan for emergencies
A budget deficit would result when a person's or family's
Actual spending exceeds planned spending
The document that would be most useful to plan spending and saving to achieve financial goals is the
Budget
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
Jennifer Rodriguez plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school, and she wants to save money each month to reach her goal. What type of computation should she use?
Future value of an annuity
An investor should expect to receive a risk premium for
Higher uncertainty about getting his/her money back
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 causes changes in buying power is referred to as ____________ risk.
Inflation
Common stock and bond brokerage statements are an example of a(n) ____________ record.
Investment
The 'borrowing' component in a financial plan relates to
Maintaining control over credit-buying habits
The rate used to calculate the tax due on the next dollar of income is referred to as the
Marginal tax rate.
When creating a personal balance sheet, which of the following is a current liability?
Medical Bill
The Rule of 72 is:
Used to estimate how fast prices will double using a given annual inflation rate
Opportunity cost refers to
What you give up by making a choice.
Income that is not subject to tax is called
tax-exempt income
Present value computations are also referred to as
Discounting
A current ratio of 2 means
$2 in liquid assets are available for every $1 of current liabilities
If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?
$250
Rebecca Wilson budgeted $395 for a new wardrobe in June. She actually spent $425. What is her budget variance?
$30 deficit
The main purposes of personal financial statements are to
-Report your current financial position. -Measure your progress toward financial goals. -Maintain information about your financial activities. -Provide data for preparing tax forms or applying for credit. *all of these are correct
Which of the following is a component of money management?
-Storing and maintaining personal financial records and documents. -Creating a balance sheet. -Creating and implementing a plan for spending and saving. -Creating a cash flow statement. *All of these are components of money management
Place the following steps for a personal financial plan in the proper order: 1. Review and revise the financial plan 2. Identify alternative courses of action 3. Create and implement your financial action plan 4. Determine your current financial situation 5. Evaluate alternatives 6. Develop your financial goals
4, 6, 2, 5, 3, 1
A debt ratio of 0.5 indicates
For every dollar of net worth, debt equals $0.50.
Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?
A Roth IRA
Connie thinks that her salary and tax rate for next year will be lower than for this year. What step should she take to minimize her taxes in the current year?
Accelerate deductions
When calculating federal income taxes, what increases "gross income"?
Alimony received
Which of the following situations describes a person who could be insolvent?
Assets $40,000; liabilities $55,000
The equation to calculate net worth is
Assets - Liabilities = Net Worth
The tax based on the total tax due divided by taxable income is called the
Average tax rate
Another name for a statement of financial position is a
Balance sheet
The difference between the amount budgeted and the actual amount received or spent is called the
Budget variance
Adjustments to income include all of the following except
Charity contributions
Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction?
Miscellaneous expenses that exceed 2% of AGI
When creating a personal balance sheet, which of the following is an investment asset?
Retirement account such as 401k
Taxes on earnings that fund old age, survivor, and disability insurance benefits are called
Social security taxes
Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?
Subtract his itemized deductions
Which of the following is NOT an action that can reduce your taxes?
Taking out a consumer loan
If Brenda wants to pay her fair share of taxes, no more and no less, she should practice
Tax avoidance
According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?
Taxpayer
Disposable income equals
The amount a person or household has to spend
The consumer price index measures:
The average change in prices of a fixed basket of goods and services of urban consumers
Gross income less Adjustments to Income equals
adjusted gross income
Money management refers to
day to day financial activities
All of the following can reduce your taxes today except investing in
A Roth IRA
A tax imposed on the value of a person's property at the time of death is called a(n
Estate tax
Every decision involves uncertainty, which is referred to as
Evaluating risk
A tax due on the purchase of gasoline is called a(n)
Excise tax
Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have accumulated for his purchase?
Future value of an annuity
This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels
Income tax
An advantage of effective personal financial planning is:
Increased control of financial affairs
If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.
More
The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a
Personal balance sheet
Which of the following appears as a cash outflow on a cash flow statement?
Variable expenses and loan payment
A personal balance sheet reports
Items owned, amounts owed, and your net worth
Future value computations are often referred to as
Compounding
Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?
Debt-payments ratio
Which of the following will increase the net worth of a household?
Decrease amount owed on credit cards
Individuals can file their federal taxes using all of the following except
Deliver in person
When calculating federal income taxes, "gross income" includes all of the following except
Earned income credit
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?
Foregoing wages to attend school
Paul Davis wants to deposit a lump sum of 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
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
After having established a spending plan, it is important to
Keep track of your actual income and expenses
Which of the following are two personal financial statements that you create yourself?
Personal balance sheet and cash flow statement
Which of the following would increase the interest rate for a loan?
Poor credit rating
An advantage of investing in a 401(k) plan is the
Possibility of receiving an employer match on your contributions.
Rhonda Miller wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?
Present value of annuity
The tax that is a major source of revenue for local governments is called a(n)
Real estate property tax
