Personal Finance - SB Chapter 1
Assume a $650 investment earning 8%. What is the future value?
$100 deposited in a 6% account for one year will grow to $106. FV= $100+($100x0.06x1 year)=$106
Paul invested $185. The interest earned is 4 percent, compounded annually. At the end of two years, Paul will have about:
$200 $185 x (1.04) x(1.04)=$200.10 Input PV=185, I/Y=4,N=2. Solve for FV
Interest calculation
$500 on deposit at 6% for six months would earn the following: $500 * 0.06 * 0.5 =$15 .5 comes from half of a year. 6 months = half a year
Samantha is trying to decide between two investments. The first one will earn 5 percent simple interest annually. The second investment will earn 5 percent interest compounded quarterly. Assuming they have the same amount of risk, which is the better investment?
5 percent interest compounded quarterly
Financial literacy
The use of knowledge and skills for earning, saving, spending and investing money to achieve personal, family and community goals.
Identifying alternative courses of action is the Blank______ step in the financial planning process.
Third
Personal opportunity costs include the following:
Time Heath Energy Abilities Knowledge
Future value is the amount to which current savings will increase based on a certain interest rate and ________.
Time period
What is the purpose of developing and analyzing your financial goals?
To differentiate your needs from your wants.
Rule of 72
To find out how fast prices (or your savings) will double. Divide 72 by the annual inflation (or interest) rate. EX: An annual inflation rate of 4 percent, for example, means prices will double in 18 years (72 ÷ 4 = 18). Regarding savings, if you earn 6 percent, your money will double in 12years (72 ÷ 6 = 12).
Reviewing and revising your plan is the Blank______ step in the financial planning process.
Final
Determining your current financial situation is the Blank______ step in the financial planning process.
First
Financial plan
Formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.
A series of equal deposits or payments is called a(n):
Annuity
Assume a $650 investment earning 8% for 10 years. Whatis the future value?
FV=PV(1+i)^n FV=$650(1+.08)^10 FV=$1,403.30
Determining your current financial situation involves which of the following?
Identifying current income, savings, living expenses and debts. Preparing your personal financial statements.
Which of the following is a possible pitfall in creating and implementing your financial plan?
Inflexibility
According to the text, you should do a complete review of your finances at least:
Once a year
Another name used for discounting is:
Present value computations
Another name used for calculating present value is Blank______. Compounding is the other term for future value.
discounting
Understanding how the ages of dependents will affect your savings goal is a part of step four in the financial planning process, which involves evaluating your ______.
Alternatives
Understanding how the ages of dependents will affect your savings goal is a part of step four in the financial planning process, which involves evaluating your ________.
Alternatives
An _____ is a series of equal deposits or payments
Annuity
The steps in the financial planning process can guide your Blank______ planning.
Career
Which of the following statements is NOT true?Career choice decisions do not have risks and opportunity costs. Career choices require periodic evaluation of trade-offs related to various factors. Reason: Career choices do require periodic evaluation; they do have risks and opportunity costs. The average person changes jobs seven times in a lifetime. incorrect Reason: The average person changes jobs seven times in a lifetime; career choices do have risks and opportunity costs. The steps of the financial planning process can provide an approach to career planning.
Career choice decisions do not have risks and opportunity costs.
Which of the following are part of evaluating alternative courses of action in the financial planning process?
Considering inflation risk, Evaluating risk, Considering the consequences of your choices
According to AICPA Insights, which of the following is a common mistake related to implementing a financial plan?
Emotional decision making
Choosing to save a larger amount each month is an example of which possible course of action that is a part of step three in the financial planning process?
Expanding the current situation
Compounding is also referred to as Blank______ value computations.
Future
The amount to which current savings will increase based on a certain interest rate and a certain time period is called:
Future Value
What is the current value of a future amount based on a certain interest rate and a certain time period?
Present value
Personal financial planning
Process of managing your money to achieve personal economic satisfaction.
Developing your financial goals is the Blank______ step in the financial planning process.
Second
Future value of a single amount
The amount to which current savings will increase based on a certain interest rate and a certain time period. EX: $100 deposited in a 6% account for one year will grow to $106 Future value = $100 + ($100 * 0.06*1 year)=$106 Compounding occurs when interest is earned on previously earned interest.
If you deposit $50 a year at 7% for six years, starting at the end of the first year, how much will you have at the end of the first year? - FUTURE VALUE OF A SERIES OF DEPOSITS
You will have $357.65 at the end of that time
After considering the alternative courses of action to reach financial goals, one of the possible courses of action is to __________.
continue the same course of action
Another name used for discounting is:
present value computations.
