Finance test 1

When completing a cash flow statement, deductions are subtracted from salary to determine take home pay.

true

inflation reduces the buying power of money

true

opportunity costs refer to time, money, and other resources that are given up when a choice is made.

true

purchasing a car is an example of a durable- product goal

true

retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.

true

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

true

when prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.

true

risks associated with most financial decisions are easy to measure

false

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

false

the life situation of a household has little influence on personal financial planning decisions

false

A cash flow statement uses the equation: cash inflows - cash outflows = cash surplus (deficit)

true

Current liabilities are the debts you must pay within a short time.

true

In an organized system, a will belongs in a home file.

true

In an organized system, an annual stock investment statement belongs in a safe deposit box.

true

In an organized system, birth and marriage certificates belong in a safe deposit box.

true

Money management refers to day-to-day financial activities necessary to manage personal economic resources.

true

One method to save more money is to write a check each payday and deposit it in a savings account not readily available for regular spending.

true

Programs are available to help low-income older or disabled people who have difficulty budgeting.

true

The current financial position of an individual or family is a common starting point for financial planning.

true

developing a budget is part of the "spending" component of financial planning activities.

false

Because of interest that can be earned, if I can invest a dollar today, it should be worth _________ in the future.

C. More

Which of the following intermediate goals is stated most clearly?

C. Purchase a house with a mortgage no greater than $150,000 within 3 years

inflation is most harmful to people with incomes expected to increase

false

The consumer price index reflects:

C. The change in prices of products and services of urban consumers

the major function of a financial plan is to

C. achieve financial goals

The loss of a job is referred to as ____________ risk.

C.income

The first step of the financial planning process is to

C. Analyze your current personal and financial situation

Who is most likely to benefit by inflation?

C. Borrowers

Future value computations are also referred to as

C. Compounding.

_________ goals relate to infrequently purchased, expensive items.

C. Durable-product

An investor should expect to receive a risk premium for

C. Higher potential earnings due to uncertainty

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?

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

The changing cost of money is referred to as ____________ risk

A. interest-rate

Which of the following short-term goals is stated most clearly?

A. than $17,000 within 6 months Buy a car for less

Present value computations are also referred to as

A. Discounting.

A question associated with the saving component of financial planning is

A. Do you have an adequate emergency fund?

Changes in income, values, and family situation make it necessary to

A. Evaluate and revise your actions

Attempts to increase income are part of the _____________ component of financial planning.

A. Obtaining

Which of the following would increase interest rate the for a loan?

A. Poor credit rating

Many Americans have money problems because of

A. 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?

A. Present value of a single amount

Money management refers to

B. Day-to-day financial activities.

A home file should be used for storing

B. Financial records for current needs.

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?

B. 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?

B. His credit rating is poor because of his late payments

lower consumer prices are likely to be accompanied by

B. Lower interest rates

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

B. Opportunity

Which of the following is an example of opportunity cost?

B. Saving money instead of taking a vacation

Opportunity cost refers to

B. The trade-off of a decision.

The Rule of 72 is:

B. Used to estimate how long it takes for prices to double using a given annual inflation rate

The rising of prices that causes changes in buying power is referred to as ____________ risk

B. inflation

9) The goal of investing $50 per month for the next 18 years for your nephew's college fund is a(n) __________ goal

C. Long-term

The goal of purchasing a long-term care insurance policy would be most appropriate for

D. A single adult nearing retirement age.

The stages that an individual goes through based on stages in the family and financial needs is called the

D. Adult life cycle

The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.

D. Borrowing

The actual cost of living increase for a household will be:

D. Either greater than or less than the inflation rate as reported by the CPI depending on the household's "basket" of goods and services purchased

To develop a financial plan, one should

D. Identify specific, realistic goals along with the time frame and an action plan

The time value of money refers to

D. Increases in an amount of money as a result of interest earned.

Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

D. Present value of an annuity

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

D. Save $100 a month to create a $4,000 emergency fund.

Financial decisions related to income include all except the following

D. Taking

An example of a personal opportunity cost would be

D. Time comparing several brands of personal computers

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

D. Type of investment.

Which of the following financial documents would most likely be stored in a safe deposit box?

D. marriage certificates

Fran Gardner has a goal of "saving $25 per month for a TV." Fran's goal lacks

E. A time frame

Which of the following is NOT a component of money management?

E. All of the above are components of money management

Which of the following is correct?

E. Food and clothing are consumable-product goals

Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 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 for his purchase?

E. Future value of an annuity

Rebecca Gladyn 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?

E. Future value of an annuity

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

E. Invest $50 per month for the next 18 years for my nephew's college fund

The 'borrowing' activity in a financial plan relates to

E. Maintaining control of credit-buying habits

The uncertainty associated with decision making is referred to as

E. Risk.

The potential for difficulty to convert an investment to cash is referred to as ____________ risk

E. liquidity

The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk.

E. personal

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

True

interest earned is calculated by multiplying the principal times the opportunity cost

false

intermediate goals are usually achieved within the next year or so

false

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

b. Financial plan

an advantage of personal financial planning is:

c. increased control of financial affairs

opportunity costs refer to money already spent

false

purchasing a car is an example of a consumable-product goal

false

A budget is a record of how a person or family has spent their money.

false

A cash flow statement uses the equation: assets - liabilities = net worth.

false

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

false

A financial plan is another name for a budget.

false

Financial advisers suggest that an emergency fund should cover one to two months of living expenses.

false

Financial plans are only created by financial planners.

false

Financial records that may need to be referred to on a regular basis should be kept in a safe-deposit box.

false

In an organized system, credit card records belong in a safe deposit box.

false

Money management refers to annual financial activities necessary to manage personal economic resources.

false

Most people liquidate their assets to calculate their net worth.

false

Net worth is the amount owed to others.

false

One method to spend more money is to use a direct deposit system from payroll.

false

Records related to tax returns should be saved for ten years.

false

The focus of an organized system of financial records is to reduce credit card usage.

false

The two primary personal financial statements include the personal balance sheet and a credit card payoff statement.

false

When completing a cash flow statement, take home pay less deductions equals salary.

false

When creating a budget, it is important to save the amount you have left at the end of the month.

false

Wills and Social Security data should be kept for up to ten years.

false