Personal Finance Ch. 1

Someone who strongly agrees with (a) the thought of taking risk is exciting, (b) high returns are more important than safety, and (c) making money in stocks and bonds is based on knowledge is most likely: a. willing to take more financial risk. b. willing to take no financial risk. c. feeling that he or she cannot control his or her financial future. d. believing in luck and fate.

willing to take more financial risk.

Which of the following strategies is most likely to increase your confidence about your financial future? I. Saving money on a regular basis. II. Paying down debt as quickly as possible. III. Borrowing money to improve GDP.

I and II only.

Your friend Lucia is a procrastinator. How can you best help her overcome this weakness? I. Create deadlines. II. Encourage hyperbolic discounting. III. Strengthen her confirmatory bias.

I only.

Which of the following elements influence your view of the financial world? I. Your risk tolerance II. How much you believe you control your financial future. III. Knowledge about personal finance topics

I, II, and III

It is possible to increase your financial risk tolerance over time. What is the process of risk tolerance change? a. Knowledge leads to confidence, which leads to experience, understanding and an increase in risk tolerance. b. Experience leads to understanding, which leads to confidence, knowledge, and an increase in risk tolerance. c. Risk tolerance leads to confidence, which leads to understanding, experience, and increased knowledge. d. Understanding leads to risk tolerance, which leads to experience, confidence, and increased knowledge.

a. Knowledge leads to confidence, which leads to experience, understanding and an increase in risk tolerance.

Which of the following refers to the "S" in SMART goals? a. Specific. b. Simple. c. Strategic. d. Significant.

a. Specific.

Jerry recently earned $200 on an investment. Unfortunately, the investment fell in value, and he lost $200. Afterward, Jerry felt miserable. He hated losing the money much more than he enjoyed seeing the investment grow. Jerry's experience is an example of: a. loss aversion. b. discounting. c. behavioral economics. d. heuristic meditation.

a. loss aversion.

Nigel believes that most "rich people" obtained their wealth either through hard work or by investing wisely. Assuming Nigel adopts this same perspective as a guide to his own spending and saving behavior, he is most likely to become: a. more knowledgeable about the financial marketplace over time and increase his personal wealth. b. disillusioned later in life as he nears retirement. c. a consistent purchaser of lottery tickets. d. both disillusioned later in life as he nears retirement and a consistent purchaser of lottery tickets.

a. more knowledgeable about the financial marketplace over time and increase his personal wealth.

Swarn is a risk-taker. His core life philosophy is that nothing bad can happen to him. When he thinks back over his life, he can't remember any serious negative events. When he looks ahead, he simply can't imagine a painful loss occurring to him. Swarn likely suffers from a(n): a. optimism bias. b. loss-aversion bias. c. cognitive evaluation bias. d. future discounting bias.

a. optimism bias.

Which of the following people is most likely to be considered financially knowledgeable? a. Jamie, who has low self-confidence, likes to gamble, and rarely tracks news stories online. b. Todd, who exhibits self-control but is not self-confident or financially experienced. c. Michelle, who gives regularly to charity, reads about investing, and is self-confident. d. John, who lives day-to-day, is experienced with investing, but sometimes spends more than he earns.

c. Michelle, who gives regularly to charity, reads about investing, and is self-confident.

Who is most likely to accumulate more wealth? a. The person who takes a slow-and-steady low-risk approach. b. The person who is willing to take big gambles. c. The person who is willing to take risk after adequate research. d. The person who likes to gamble and play the lottery.

c. The person who is willing to take risk after adequate research.

Example(s) of human capital include which of the following? a. Formal education. b. Health. c. Skill development. d. All of these answer choices are correct.

d. All of these answer choices are correct.

Loraine is thinking about her future retirement goals and needs. She has 25 years until retirement. She needs to save quite a bit of money to reach her retirement goal. Unfortunately, Loraine's risk tolerance is low. Given these facts, what the best recommendation for Loraine? a. Postpone retirement to offset the fact that her tolerance for risk is so low. b. Supplement her savings with the use of lottery tickets in the hopes of earning a large windfall. c. Obtain a second job to double her savings into low-risk investments. d. Invest more aggressively knowing that she has time on her side to withstand any temporary setbacks with these riskier investments.

d. Invest more aggressively knowing that she has time on her side to withstand any temporary setbacks with these riskier investments.

Risk is the ______ associated with any physical, social, emotional, environmental, workplace, or financial activity. a. benefit. b. project result. c. financial implication. d. uncertainty.

d. uncertainty.

Someone who feels that investing is too difficult to understand likely: a. has a lower level of financial literacy. b. has a high tolerance for financial risk. c. feels in control of his or her financial situation. d. is positioned to maximize lifetime wealth accumulation goals.

has a lower level of financial literacy.