personal finance
Suppose that I am trying to borrow money from you to finance my business. And suppose that I promise to repay you in two installments, one payment in two years of $5,000 and one payment in four years for $10,000. If your opportunity cost of funds is 10%, how much are you willing to lend me?
$10,962
If you deposit $1,000 each year, starting the end of first year, in an account that pays 10% interest per year, compounded annually, what will be the balance in the account after you have made ten payments, assuming you make no withdrawals from the account?
$15,937
You need $12,000 at the end of 5 years to use as a down payment on a beachfront lot in Hatteras, NC. You found a Vanguard Money Market account that pays 10% compounded annually. How much do you need to deposit each year to reach your goal?
$1965.60
What is the future value of $200 in annual deposits into an account paying 6% interest over the next 10 years?
$2636.20
What is the present value of $400 in annual deposits into an account paying 8% interest over the next 10 years?
$2684.00
If I deposit $200 in an account that pays 5% interest, compounded annually, what will be the balance in the account at the end of ten years if I make no withdrawals?
$325.78
Your best friend has written you an IOU for last nights bar tab agreeing to pay you $800 at the end of 6 years at the same interest rate you now earn on your savings account. You currently are earning 7% interest compounded annually. What was your friends bar tab?
$532.80
What is the present value of $800 received at the end of year six, assuming a 7% interest rate?
$533.36
If you lend your roommate $50 to go out on Friday night and ask him to pay you back with simple interest in 4 years at 10%, how much will he pay you back?
$70
If I invest $100 today in an account that earns 10% per year, compounded semi-annually, how much will I have in this account at the end of twenty years if I make no withdrawals?
$704
What is the present value of $300 received at the end of year 1, $400 received at the end of year 2, and $200 received at the end of year 3, assuming an interest rate of 12%?
$729.10
Your mom needs to borrow grocery money from you to feed you and your eight brothers and sisters. You agree to lend her the money at 12% interest compounded annually. She agrees and tells you she can pay you $300 in one year, $400 in two years, and $200 in three years. How much are you going to lend her?
$729.10
If you lend your younger brother $500 for a tattoo of "ECU" across the middle of his forehead and he agrees to pay you back in five years at an annually compounded rate of 10%, how much will you collect at the end of year 5?
$805.50
What is the future value of $500 deposited today at 10% for 5 years?
$805.50
How much must you deposit in an account today so that you have a balance of $1,000 at the end of five years if interest on the account is 4%, compounded quarterly?
$819.54
What is the FV of $100 deposited each month at 12% interest for 5 years?
$8200
You found a bank that will pay you 10% interest compounded semiannually. Your current bank pays interest compounded annually. You know from your finance class at ECU that this is a better deal than what you currently have and open a new account with $500. What is the difference earned between the two accounts at the end of 5 years?
$9
Your 25-year old younger sister started smoking. She is currently paying $24.00 per carton per week. You explain to her that this is $1248 per year ($24 x 52). She says big deal. You then tell her that if she were to save that same amount and invest it in the stock market, she would have a significant amount of money to retire when she turns 65. Your sister wants to know how much she would have. You know that over the long-term, the stock market has returned 12% interest compounded annually. You tell your sister that if she stops smoking she will have_________ when she retires.
$957,328
In 1992 Robert could buy a Super Sugar Deluxe chocolate candy bar for $1. Today in 2012 he pays $2.50 to buy a new and improved Extra Super Sugar Deluxe chocolate candy bar. What inflation rate caused Robert's chocolate habit to increase by $1.50 over the last 20 years?
0.0469
Robert stuffed all of his savings dollars into his mattress 15 years ago. He put $8,500 into his bedding because he did not trust any savings or investment accounts. Average inflation for the past 15 years was 3.25%. How much money does Robert need in his mattress today to have the same purchasing power that he had 15 years ago?
13733
In 1950, Jack-in-the-Box hamburger cost $0.24. In 1994, a Jack-in-the-Box hamburger cost $2.79. What is the effective annual increase in the price of a Jack-in-the-Box hamburger from 1950 to 1994?
5.73%
The Cost U Loan Company is willing to lend you $1,000 today. The loan is to be paid off in twenty equal annual installments of $100 each, beginning one year from today. What is the interest rate from Cost U Loan Company?
7.75%
The government taxes:
A,B, and C are correct
When negotiating with lenders and collection agencies people should:
Always get everything in writing, otherwise the deal does not exist
A desirable health insurance plan should cover:
At least 80% of out-of-hospital expenses and not impose any unreasonable exclusion
A deferment is not a period of time where the student?s student loan servicer will allow him or her to stop making payments.
False
When parents or college students do not qualify for a federal student loan they should always use a home equity loan.
False
__________ means either a college student is permitted to temporarily make smaller student loan payments or stop making payments all together.
Forbearance
Tax benefits, possibility of building equity, and a hedge against inflation are advantages of:
Home ownership
Ira's daughter leaves at the end of summer to begin her freshman year in college. She has asked Ira to buy her a car to drive while away at school. Her school is in a town two hours away from where they live. Ira's daughter will life in campus housing and freshmen are not allowed to have a car on campus their first year. In addition, the college provides student transportation between the college and all major shopping areas in the town. Ira and his daughter have determined a small compact car is best. In addition, they plan to buy a well maintained used car. They have researched prices and obtained financing, and are now ready to go to the car lot to negotiate with the sales person. RuAnn tells them both that they are making a poor decision. Why?
Ira and his daughter neglected the first step in the car buying process which is to analyze her needs. She may not need a car for the first year on campus
Why do financial plans still fail? It can be summed up in one simple phrase: __________ happens.
L.I.F.E
Short-term goals tend to be:
Less than three years
Robert was complaining to Mae that his automobile insurance was not as good as he was lead to believe when he purchased the policy. Robert had backed into the mailbox leaving his house and scratched the rear bumper of his car. It cost him $375 to buff and repaint the bumper. His insurance company would not reimburse Robert for the repair because the cost of the repair was less than the deductible on his insurance policy. He complained that he can easily afford the repair bill himself, buy why should he have to pay? Robert had very low premiums, but now wondered if he should buy a more expensive policy with a lower deductible. What should Mae tell Robert?
Mae should tell Robert to keep his current policy. He should insure for only the big stuff
What is the primary reason the people who sell cars, the people who sell car loans, and the people who sell car insurance want a person to buy a car?
Nobody gets paid unless the customer purchases a car
When it comes time to get rid of an old car:
People can get a little more money by selling it themselves
The main reason to understand the impact of taxes is to:
Reach one's financial goals in as short a time as possible
Automobile dealers typically:
Shop around based on the customer's credit score for the best deal on financing
When shopping for home mortgages:
Shop around for mortgage companies that have the best rates and service
The more complex the investment:
The more likely it should be avoided
Consider two investment opportunities, Tweedle Dee and Tweedle Dum. Tweedle Dee pays interest at the rate of 12% per year, compounded monthly. Tweedle Dum pays interest at the rate of 11.5% per year, compounded daily. Which investment is better?
Tweedle Dee or Tweedle Dum
__________ risk can be avoided but total risk cannot be eliminated altogether.
Unnecessary
Lenders want to make sure borrowers have the __________ to repay their loans and the willingness to use their resources to do so.
ability
A(n) __________ is simply the same amount of money invested or paid on a regular schedule, such as weekly, monthly, or annually.
annuity
__________ is a just a financial term that means equal payments at equal time intervals.
annuity
College students and parents should not assume they can eliminate federal student loans through __________.
bankruptcy
Creditors and collection agencies are not allowed to make outrageous threats, call neighbors or family, and cannot harass by telephone or in-person if the __________ sends a certified letter stating such.
borrower
At some point most people ask, ?Where did my money go?? There are countless ways that money seems to leak out of a __________.
budget
A __________ is the primary tool for managing personal expenses.
budget sheet
A __________ provides the insight to control impulse purchases and plan for big expenses like a used car or an upcoming vacation
budget sheet
__________ is one of the five C's of credit and refers to total assets (things owned) and net worth (the difference between what is owned and what is owed).
capital
Just as it is a good idea to plan financially it is a good idea to plan for a __________.
career
Just like a financial plan, a __________ plan includes setting career goals and objectives and then implementing a plan that gets one to where they want to be.
career
There is almost always more pressure from insurance salespeople to buy __________ life insurance rather than term life insurance.
cash value
Charles has worked as an instructor at a local community college for the past 12 years. He is a very good teacher and earns a good salary. He has a modest home and a nice car. Although he always has enough money in his account, he is often late making his mortgage and car payments. He does not budget well and does not pay attention to due dates. Recently he was denied when he applied for a credit card. What aspect of Charles' credit card application was the lender considering when it declined to give Charles a credit card?
character
Living off campus is usually __________ than living on campus.
cheaper
The Teacher Education Assistance for College and Higher Education Grant (TEACH Grant) is a __________ federal student grant.
common
If anyone intends to earn a four-year degree, then spending the first two years at a __________ college may be one of the most cost-effective ways to do so.
community
Instead of having multiple loan payments to different student loan servicers, college students and parents can __________ their federal student loans so they have one payment.
consolidate
Although a resume is the tool that helps secure an interview, a well written __________ provides the incentive for a potential employer to read the resume.
cover letter
Information gathered for __________ reports come from credit and banking agencies voluntarily reporting information about credit habits to credit reporting agencies.
credit
The ease of __________ provided by credit cards makes it very easy to overspend.
credit
__________ is the availability of borrowed money.
credit
Before beginning to search for car loans it is a good idea for people to review their __________.
credit report
__________ from the different credit reporting agencies may look somewhat different from each other.
credit reports
It is important for taxpayers to understand the difference between tax ________ and tax deductions if they want to pay minimum income taxes.
credits
A cover letter should be __________ for each individual job application.
customized
Each type of insurance has its own type of __________.
deductible
A __________ is a period of time where the student?s student loan servicer will allow him or her to stop making payments.
deferment
A budget is a secondary tool for managing personal expenses.
false
A car loan is generally unsecured, which means unlike a mortgage there is not an asset attached directly to the loan as security.
false
A good cover letter should be at least three pages long.
false
A surplus on a net worth sheet represents an increase in net worth on the corresponding net worth statement.
false
A used car owner is the first person contacted when something is recalled and even has legal recourse if he or she encounters a problem that the automobile dealer or manufacturer is unable to resolve.
false
According to experts most adult children know a lot about their parents? finances since they expect to have to help their parents financially in the future.
false
Although it is important to talk about money with children, it is not important to talk to parents about money.
false
An expensive wedding dress is always worth the expense.
false
As more experience is gained with developing a budget, it becomes more difficult to set aside money for unanticipated or non-monthly expenses.
false
Budgeting is the power of the time value of money.
false
Building an emergency fund is not a good first S.M.A.R.T. financial goal for most people.
false
Businesses buy things because they like them, not because they can make or save money from them.
false
Cash value life insurance simply provides death benefit protection for a specified period of time.
false
Character is not one of the five C's of credit.
false
Communication and leadership are two sets of skills very few employers value.
false
Consumer Reports (www.consumerreports.org) is an organization dedicated to credit counseling.
false
Debt comes in only one form.
false
Few new investors have trouble guarding against fear of loss.
false
Few people are surprised by how much they spend on clothes after having tracked the expense for a while.
false
Few people have just one or two sources of income.
false
Fortunately, many marriages never end.
false
Health insurance should be part of very few people's overall risk management plan to safeguard their and their family?s economic security.
false
How to manage a career is not a financial decision.
false
In general, risk is the probability or likelihood of a favorable event occurring.
false
In general, salespeople advise customers never to spend money on things they did not originally intend to buy.
false
Insurance is not used to help protect from financial loss due to disability, illness, death, property loss, and liability.
false
It is a good idea to wait until parents are comfortable with money to begin teaching children good money habits.
false
It is not a good idea to be the first person a boss thinks of when he or she has a critical assignment that must be done right and must be done on time.
false
It is not important for taxpayers to understand the difference between tax credits and tax deductions if they want to pay minimum income taxes.
false
It is unimportant to take steps to keep a career balanced and in line with personal goals and objectives.
false
It rarely makes sense for a college student to attend a community college for two years and transfer to a four-year school because it is costly if the transition is not planned for wisely.
false
Landlords pay property tax, but never pass the expense on to the renter by building it into the cost of the rent.
false
Money stuffed in a mattress is not subject to the time value of money.
false
Never review one's tax situation in order to avoid an ?April 15th Surprise.?
false
No understanding of time value of money or a financial calculator is necessary to improve financial capability.
false
Only one financial calculator is available to use in time value of money calculations.
false
Over the long run prudent financial planning will slowly increase the need for life insurance.
false
Personal property tax is paid on the value of the things one rents.
false
Property insurance coverage pays for damages to a car when it is involved in an accident.
false
Since increasing income is more desirable, it is more likely to be done quickly and easily compared to decreasing expenses.
false
Since it is unlike any other purchase, it is unnecessary to shop around for mortgage companies that have the best rates and the best service.
false
State birth tax, for those states that have this tax, requires that parents to pay a certain percentage of all wealth that is to be transferred as part of an inheritance.
false
Student financial aid is based on many factors, but never college students? and parents? previous year?s income and assets.
false
Talking about money is always easy.
false
Taxes are almost always one a minor expenses on a budget.
false
Taxes are never difficult and confusing.
false
The Free Application for Federal Student Aid (FAFSA) can be completed online only.
false
The concept of time value of money (TVM) leads to poor financial decisions all the time.
false
The federal government does not have an estate tax.
false
The future value of a lump sum is used to calculate what a future dollar amount is worth today.
false
The goal of making one million dollars this year or paying off the house in the next six months is a realistic goal for most people.
false
The less risk presented to the insurance company the more will be charged to insure against a loss.
false
The old argument that a tax refund is like having a built-in savings plan is a very good argument as there are no better ways to save.
false
The present value of an annuity calculates how much a regular series of payments will be worth at some point in the future.
false
The primary way to shift the cost of risk is by avoidance.
false
The purpose of the resume is to get a job.
false
There are no reputable online lenders that offer car loans.
false
There is no difference between a financial calculator and any other calculator.
false
There is rarely much emotional energy in a money conversation.
false
Typically it is rarely smart to forgo extended warranties when making small purchases.
false
Understanding the affect taxes have on purchasing decisions is not important to reaching personal financial goals in as short a time as possible.
false
Understanding time value of money is not necessary to making good financial decisions.
false
Unlike renter?s insurance, homeowner?s insurance covers personal property, provides liability protection, and pays for other expenses.
false
Using a home equity loan to pay off several credit cards eliminates the amount owed.
false
Very few states require drivers to carry some minimum level of automobile insurance.
false
When beginning to invest it is usually best to avoid simple investments.
false
When talking about credit scores it is common to hear the term budget.
false
Federal student loans are considered borrower __________.
friendly
An __________ mutual fund does not incur all those commissions from frequently trading stocks that an actively managed mutual fund does.
index
An __________ company, or insurer, is a risk-sharing firm that assumes financial responsibility for losses from the insured in exchange for a fee.
insurance
The __________ the investment horizon, the greater the level of risk that can be accepted.
longer
___________ financial goals emphasize how much.
measurable
It is unnecessary for college students to __________ someone to help them search for grants or scholarships.
pay
There is absolutely no connection between a person?s net worth and their worth as a ___________.
person
A __________ loan is generally unsecured, which means unlike a mortgage or a car loan there is not an asset attached directly to the loan as security.
personal
People work in a __________ world, but live and play in a post-tax world.
pre-tax
Excise taxes are usually paid on:
purchases
A small deductible means the insured person presents more __________ to the insurance company because each claim costs the company more.
risk
The more __________ financial goals are made, the easier it is to track movement towards achieving them.
specific
To answer any time value of money question, at least __________ of the five pieces of information must be known.
three
A 12-month budget makes it easy to understand why a shortage occurred and whether it was a one-time shortfall or something that is going to repeat each month.
true
A budget sheet is easily customized so that it makes the most sense for each individual.
true
A credit card is a huge convenience, but for many people makes it extremely easy to overspend.
true
A full understanding of time value of money and a simple financial calculator greatly improve financial capability.
true
A lot of different financial calculators are available to use in time value of money calculations.
true
A major life event includes things like marriage, divorce, having a baby, adopting a child, receiving an inheritance, changing jobs, or significantly reducing or increasing one's income.
true
A mix of different types of credit is good for increasing a person's credit score.
true
A mutual fund brings together thousands of small investors and pools together everyone?s resources.
true
A number of not-for-profit agencies offer some sort of college tuition reimbursement or forgiveness program in exchange for a commitment to work with them for some length of time after graduation.
true
A will is nothing more than a legal document that lets everyone know how and to whom money and other possessions are distributed upon death.
true
Although rarely thought of this way, for most people their tax burden is actually their largest annual household expense.
true
Although there are many different kinds of time value of money questions, there are only four types of time value of money problems that are important for most people to understand.
true
Although there are several reporting agencies, the three largest and most used are Equifax, Experian, and Transunion.
true
An accurate definition of consumer loans is any loan to a consumer which includes mortgages, car loans and credit cards.
true
An index mutual fund does not incur all those commissions from frequently trading stocks that an actively managed mutual fund does.
true
An insurance rider is simply extra coverage that is in addition to what is received with the main insurance policy.
true
Annuity is a just a financial term that means equal payments at equal time intervals.
true
Arriving at a job interview late adds stress to an already stressful situation.
true
Building an emergency fund is a good first S.M.A.R.T. financial goal for most people.
true
By not understanding the basic concept of the time value of money (TVM) people make poor financial decisions all the time.
true
Car dealers typically have relationships with several finance companies.
true
Car loan payments can be one of those budget busters that greatly reduce the amount of money left over to spend on other things like vacations, entertainment, and even savings or retirement.
true
Depending upon the complexity of a parents? financial situation, an adult child can use do-it-yourself form kits, download do-it-yourself forms from online websites, or can enlist the help of an attorney to help manage their parents? finances.
true
Disability insurance purchased through an employer may allow the premium to be paid in pretax dollars.
true
Flexibility and mobility are the keys to successfully managing a career early on.
true
For the average wage earner about one-third of each marginal dollar in earned income goes toward taxes.
true
Home owners are viewed by the financial industry as being more stable.
true
Ignoring the effect taxes have on spending choices very often leads to making poor decisions.
true
Information gathered for credit reports come from credit and banking agencies voluntarily reporting information about credit habits to credit reporting agencies.
true
Insurance companies pay a lot of attention to the relationship between risk and cost.
true
Insurance is one purchase that should be made with the hope of never having to use it.
true
Insurance often is complicated and complex.
true
Insurance policies that have multiple restrictions and few opportunities to redeem the policy or only cover very specific circumstances should be avoided in most cases.
true
Insurance should not be used to smooth out all the little bumps of life.
true
It is a good idea to find ways to reduce expenses to create the largest budget surplus possible so more money can be allocated to achieving financial goals.
true
It is expected that interest rates for consumer loans will be higher than car loans, mortgages, or student loans.
true
It is important to continually plan for a career.
true
Many colleges have a hard waiver policy, which means college students are automatically covered and charged for health insurance.
true
Many four-year colleges and their academic departments are very specific about the classes they accept from other universities and community colleges.
true
Many more people are involved in a real estate transaction than just the real estate agents.
true
Measurable financial goals emphasize how much.
true
Most college student financial aid grants come from the state and federal government, such as the Pell Grant and the Supplemental Educational Opportunity Grant.
true
Most complicated investment choices and investment strategies do not make better investments than quality simple investment choices.
true
Most people are surprised by how much money they spend in certain budget categories, especially dining out.
true
Most people cannot separate their financial life from their professional life.
true
Most people do a poor job of making a wise car purchase.
true
Most people have just one or two sources of income and it is relatively level.
true
New credit represents 10% of a credit score.
true
On nearly all real estate contracts there are contingency clauses.
true
People work in a pre-tax world, but live and play in a post-tax world.
true
Personal financial goals can be short-term, mid-range, or long-term.
true
Property taxes can affect home owners (real estate taxes) as well as automobile owners (personal property taxes).
true
Rather than allowing emergencies to cause some financial hardship every time something unexpected happens, it is a good idea to put money aside to cover unplanned emergencies.
true
Similar to renter?s insurance, homeowner?s insurance covers personal property, provides liability protection, and pays for other expenses.
true
Specific financial goals avoid general terms such as, ?I plan to retire a millionaire.?
true
Taxes can be difficult and confusing.
true
Taxes on purchases include sales taxes and excise taxes.
true
The average family stays in their home for less than seven years.
true
The first step in the home-buying process is to consult the net worth statement.
true
The future value of an annuity calculates how much a regular series of payments will be worth at some point in the future.
true
The present value of a lump sum is used to calculate what a future dollar amount is worth today.
true
The present value of an annuity allows easy calculation of what a series of regular payments to be received in the future is worth today.
true
The purpose of the resume is not to get a job, but to get an interview.
true
The question, ?How much money did Grandma put into an account in the beginning?? implies a one-time deposit.
true
There are four ways in which to manage pure risks faced each day: avoidance, assumption, reduction, and shifting.
true
There are opportunities to gain valuable leadership experience in almost any position within any company.
true
There are so many different types of taxes and so many rules involved that even experienced tax professionals do not know it all.
true
There are two basic types of life insurance: term and cash value.
true
There is not set number of checking accounts that will work for every couple.
true
To answer any time value of money question, at least three of the five pieces of information must be known.
true
Understanding time value of money is fundamental to making good financial decisions.
true
Using a debit card to make purchases makes it easy to categorize and track expenses for the month by referring to a copy of the bank statement.
true
Very few people really think about their professional or work lives beyond what they need to do to get to the end of the day.
true
Waiting to start investing significantly reduces the amount of money available later on.
true
Wealth is taxed at both the state and federal levels primarily through inheritance taxes.
true
When investing, mutual funds provide immediate diversification.
true
When shopping for a new home the first thing most people do is contact a real estate agent and start looking at homes.
true
When talking about credit scores it is common to hear the term FICO.
true
Why do financial plans still fail? It can be summed up in one simple phrase: L.I.F.E. happens.
true
With speculative risk there is a chance of loss, but there is also a chance of significant gain.
true
Work study earnings do not impact eligibility for financial aid the following year.
true
