Personal Finance Chapter 1 Part 2

An annuity is a series of _____ deposits.

equal

Discounting is the process of calculating:

present value.

Select all that apply When setting financial goals, you should ensure they are:

specific. measurable. time-based. action-oriented.

One of the methods used to calculate future value is:

spreadsheet software.

Paula invested $370. The interest earned is 4%, compounded annually. At the end of two years, Paula will have about:

$400.

If you deposit $500 per year in an account for nine years at 6%, how much will you have in the account?

$5,746

Simon will be receiving $200 per year for the next five years. The interest on the account is 6%, compounded annually. What is roughly the present value of this annuity? Use the appropriate table in the appendix at the back of the chapter for the present value of an annuity.

$843

True or false: A financial plan is a formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

True

True or false: A key factor in making financial decisions is time value of money.

True

True or false: Appropriate insurance coverage is an essential part of personal financial planning.

True

True or false: Frank can invest some of the money he has been saving in the stock market now; however, that would probably require some trade-offs on his part.

True

True or false: Liquidity needs vary based upon a person's age, health, and family situation.

True

True or false: Three items needed to calculate future value include: principal, length of time, and annual interest rate.

True

Future value computations are often referred to as compounding, as ______.

interest is earned on previously earned interest

Spending money from your savings account would mean:

lost interest.

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is called a(n) ______.

financial plan

The amount to which current savings will increase based on a certain interest rate and a certain time period is called ______.

future value

Examples of opportunity costs do not include:

having enough money to fund retirement and pay for current expenses.

Select all that apply Liquidity needs vary based upon which of the following items?

health the person's age family situation

Select all that apply Investors who are interested in receiving an income stream will probably not invest much of their money in ______.

high-growth mutual funds money market accounts paying next to nothing in interest high-growth stocks that pay no dividends

Select all that apply Two long-term financial planning activities include:

identifying financial activities for the next ten years. determining savings activities needed to meet financial goals.

Sandra continues to have challenges keeping her debt at a reasonable level. This will mean that there will be:

less money available for the future.

The ability to buy or sell an investment quickly without substantially affecting the investments value is called ______.

liquidity

Spending less than you earn is the only way to achieve ______ -term financial security.

long

Investing in financial instruments for long-term growth is a ______ financial strategy.

long-term

Since Carl has gone bankrupt, he decided to stop misusing his credit. This will mean that there will be:

more money available for the future.

Select all that apply Savings plans are not designed to provide for:

unplanned social events. last-minute vacations.

Marie will be receiving $300 per year for the next six years. The interest on the account is 5%, compounded annually. What is roughly the present value of this annuity? Use the appropriate table in the appendix at the back of the chapter for the present value of an annuity.

$1,523

Paul needs to have $200 in two years. The interest earned on the account is 4%, compounded annually. How much does he need to invest today?

$185

Paul invested $185. The interest earned is 4%, compounded annually. At the end of two years, Paul will have about:

$200.

Sam has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the first year if the investment earns simple interest?

$220

Phillip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns simple interest compounded annually?

$242

If you deposit $500 per year in an account for six years at 9%, how much will you have in the account? Use the appropriate table in the appendix at the back of the chapter for the future value of an annuity. Round your answer to the nearest whole dollar amount.

$3,762

Paula needs to have $400 in three years. The interest earned on the account is 6%, compounded annually. How much does she need to invest today? Use the appropriate table in the appendix to the chapter for the present value of $1 at the end of a given number of time periods.

$336

Samantha is trying to decide between two investments. The first one will earn 5% simple interest annually. The second investment will earn 5% compounded quarterly. Assuming they have the same amount of risk, which is the better investment?

5% compounded quarterly

According to the text, why is goal setting an important aspect for personal financial growth?

Goal setting assists with the financial decision-making process.

Retirement planning includes housing decisions, recreational choices, and part-time work options.

True

Personal opportunity costs include using your time, in addition to or in place of money, to

achieve your goals. meet your needs. satisfy your personal values.

You have developed a savings plan and will be setting aside money for the next one year to make an investment. You plan to use the return from this investment to make down payment to purchase a home after three years. What are key time frames for this goal? Look at the timing of goals in the chapter.

achieving short-term and intermediate goals

One essential element of personal financial planning is:

adequate insurance coverage.

A series of equal deposits or payments is called a(n):

annuity.

Which term is a set of federal laws that allows you to either restructure your debts or remove certain debts?

bankruptcy

The legal status of a person who is not able to pay debts owed is called:

bankruptcy.

Select all that apply Retirement planning typically does not include:

comparing your net worth to net worth of others. plan to repay college loans.

Financial planning is designed to:

create a better life.

Select all that apply Financial planning would not improve your quality of life by:

creating barriers to enjoying life. creating specific rules for how everyone should live. guaranteeing happiness.

The present value is the ______ value for a ______ amount based on a particular interest rate for a certain period of time.

current; future

What are some of the methods that can be used to compute time value of money?

financial calculator mathematical formulas time value of money tables

One of the most commonly overlooked type of insurance is (found in discussion of managing risk):

disability.

Another name used for calculating the present value is ______.

discounting

Investors that are interested in receiving potentially decent current income will probably invest in ______.

dividend-paying stocks

A refrigerator is considered a(n):

durable product.

Select all that apply Long-term financial security begins with a regular savings plan to provide for:

emergencies. unexpected bills. replacement of major items.

Select all that apply Three short-term financial planning activities include:

evaluating current economic conditions. setting financial goals. preparing a list of personal and financial information to help get organized.

Obtaining monetary resources is the foundation of personal ______ planning.

financial

Select all that apply Examples of opportunity costs include:

not getting a high yield because you have set aside funds in a low-risk investment. not having as much money in savings because you purchased new appliances to save energy costs. taking home less pay now because you have increased tax withholdings to receive a larger tax refund.

What is the typical time frame for an intermediate goal?

one to five years

Select all that apply Common ways to obtain financial resources are:

ownership of a business. employment. investments.

Rachel has been shopping for a new refrigerator over the course of three days instead of being at work. This is an example of:

personal opportunity costs.

Selecting your time rather than your money to meet your needs, achieve your goals, and satisfy your personal values are examples of:

personal opportunity costs.

The current value of an amount at some time in the future, based on a certain interest rate and a certain time period, is called ______.

present value

What is the current value of a future amount based on a certain interest rate and a certain time period? Notice that the future value is already known. You want to find the current value of that amount.

present value

To calculate time value of money, the following items are needed:

principal amount annual interest rate length of time

Select all that apply Three methods that help develop successful financial habits are:

providing adequate insurance coverage understanding tax and investment information focusing on a defined spending plan

An important personal opportunity cost involves the resources of money or

time

Every time you save or spend you should consider the

time value of money

What measures the increase in an amount of money as a result of interest earned?

time value of money