PFS Exam 1
An example of a personal opportunity cost would be
Time comparing several brands of personal computers.
The Rule of 72 is:
Used to estimate how fast prices will double using a given annual inflation rate
All of the following are fixed expenses except
Utilities.
When creating a personal balance sheet, which of the following is a real estate asset?
Vacation property
Which of the following appears as a cash outflow on a cash flow statement? A) Real estate assets B) Liquid assets C)Variable expenses D) Net worth E) Personal possessions
Variable expenses
Opportunity cost refers to
What you give up by making a choice.
A budget system that can be kept on notebook paper or accounting paper is called a(n)
Written budget.
Changes in the cost of money is referred to as ________ risk.
interest-rate
Common stock and bond brokerage statements are an example of a(n) ________ record.
investment
Which of the following is a cash inflow?
Income from employment
All of the following are ways that households can increase their net worth except
Increase their debt ratio.
An advantage of effective personal financial planning is:
Increased control of financial affairs
Which of the following best describes the concept of the time value of money?
Increases in an amount of money as a result of interest earned.
The inability to pay debts when they are due because liabilities far exceed the value of assets is called
Insolvency.
Which of the following appears as a cash outflow on a cash flow statement? A) Loan payment B) Cash value of life insurance C) Home value D) Balance of mortgage E) Net worth
Loan payment
The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) ________ goal.
Long-term
Increased consumer saving and investing is likely to be accompanied by
Lower interest rates
The 'borrowing' component in a financial plan relates to
Maintaining control over credit-buying habits
Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe?
Marriage certificates
When creating a personal balance sheet, which of the following is a current liability?
Medical bill
How long should you keep your most current will?
Permanently.
Which of the following are two personal financial statements that you create yourself?
Personal balance sheet and cash flow statement
The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a
Personal balance sheet.
Robert Brown 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?
Personal opportunity cost relating to time
A budget system that involves envelopes, folders, or containers to hold money or slips of paper is called a(n)
Physical budget.
Which of the following would increase the interest rate for a loan?
Poor credit rating
Many Americans have money problems because of
Poor planning and weak money management habits
Which of the following intermediate goals is stated most clearly using the SMART approach?
Purchase a house within the next 5 years with a mortgage no greater than $150,000
Which of the following is most correct? A) Adoption papers belong in a home file. B) W-2s for tax records belong in a safe deposit box. C) Rare coins and stamps belong in a safe deposit box. D) A marriage certificate should be kept in a home file. E) A current budget belongs in your safe deposit box.
Rare coins and stamps belong in a safe deposit box.
When creating a personal balance sheet, which of the following is an investment asset?
Retirement account such as a 401k
The step in the personal financial planning process that follows immediately after the step: "Create and implement your financial action plan" is
Review and revise the financial plan
Changes in personal, social, and economic factors may require you to
Review and revise your financial plan more frequently.
The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns?
Seven years
When creating a budget, it is important to
"Pay yourself first" by setting aside savings before other expenses are budgeted.
If a $10,000 investment earns a 4 % annual return, what should its value be after one year?
$10,400
If Melinda Miller estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4%, what should her weekly grocery bill be in 3 years?
$112.50
Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar.
$17,460
Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000
$3,000
A family with $100,000 in assets and $60,000 of liabilities would have a net worth of
$40,000.
If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now?
$889
Which of the following is a component of money management?
-Creating and implementing a plan for spending and saving. - Creating a cash flow statement. -Storing and maintaining personal financial records and documents. -Creating a balance sheet.
Which of the following is a liquid asset?
-Money market accounts -Checking account balance -Savings/money market accounts -Cash surrender value of life insurance
The main purposes of personal financial statements are to
-Provide data for preparing tax forms or applying for credit. -Maintain information about your financial activities. -Measure your progress toward financial goals. Incorrect Response -Report your current financial position.
If a $10,000 investment earns interest of $500 in one year, what is its rate of return?
5 percent
Financial experts recommend monthly savings of ________ of gross income.
5-10%
When creating a personal balance sheet, which of the following is considered to be a personal possession asset?
A five-year-old television set
A budget deficit would result when a person's or family's
Actual spending exceeds planned spending.
The stages in the family situation and financial needs of an adult is called the
Adult life cycle
How long should you keep documents relating to investments?
As long as you own these items.
The equation to calculate net worth is
Assets minus Liabilities = Net worth.
Items that you own that have a monetary value are referred to as
Assets.
When household budgets must be cut, which of the following categories would be most difficult to cut?
Auto insurance
Who is less likely to be harmed by inflation?
Borrowers
The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning.
Borrowing
The document that would be most useful to plan spending and saving to achieve financial goals is the
Budget.
Money management refers to
Day-to-day financial activities.
Which of the following will increase the net worth of a household?
Decrease spending by $5 per day
The money left over after paying for housing, food, and other necessities is called
Discretionary income.
________ goals relate to infrequently purchased, expensive tangible items.
Durable-product
An example of a variable expense is a(n)
Electric bill.
Every decision involves uncertainty, which is referred to as
Evaluating risk.
The first step of the financial planning process is to
Determine your current financial situation.
Present value computations are also referred to as
Discounting.
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)
Financial plan.
A home file should be used to keep
Financial records for current needs.
Using the services of financial institutions or financial specialists (such as insurance agents, certified financial planners or investment advisers) to seek relevant information is done in which step in the financial planning process?
Evaluate your alternatives.
If I can invest a dollar today and earn interest on it, then it should be worth ________ in the future.
More
Take-home pay is also called
Net pay
The amount you would have left if all assets were sold and all debts were paid in full is called your
Net worth.
When creating a budget, which of the following statements is true?
Numbers in the budget are estimates.
Attempts to increase income through employment are part of the ________ component of financial planning.
Obtaining
All of the following are sources of income except
Social Security taxes
Which of the following is a deduction to determine take-home pay?
Social Security taxes
Making financial decisions related to income involves all of the following except
Taking
Which of the following is most correct? A) A death certificate should be kept in a home file. B) Adoption papers belong in a home file. C) A warranty belongs in a safe deposit box. D) A current budget belongs in your safe deposit box. E) Tax records belong in a home file.
Tax records belong in a home file.
Disposable income equals
The amount a person or household has to spend.
The consumer price index measures:
The average change in prices of a fixed basket of goods and services of urban consumers
The loss of a job or encountering an illness results in ________ risk.
income
The rising or falling of prices that causes changes in buying power is referred to as ________ risk.
inflation
The difficulty of converting savings and investments to cash is referred to as ________ risk.
liquidity
The tangible and intangible factors that create a less than desirable situation is referred to as ________ risk.
personal
If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?
$15,010
If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months?
$15.00
If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period?
$22,054
If inflation is expected to be 8 percent, how long will it take for prices to double?
9 years
The saving component of financial planning focuses on long-term security and includes:
A regular savings plan for emergencies
Another name for a statement of financial position is a
Balance sheet.
The current financial position of an individual or family is best presented in the form of a:
Balance sheet.
The document that would report your current financial position is the
Balance sheet.
The document that would tell you what you received and spent over the past month is the
Cash flow statement.
Future value computations are often referred to as
Compounding.
Which of the following is correct? A) Entertainment is a durable-product goal. B) A car purchase is a consumable-product goal. C) Leisure and education are durable-product goals. Incorrect Response D) Appliances and sporting equipment are intangible-purchase goals. Correct Answer E) Food and clothing are consumable-product goals.
Food and clothing are consumable-product goals.
Which of the following is an example of a financial opportunity cost?
Forgoing wages to attend school
An investor should expect to receive a risk premium for
Higher uncertainty about getting his/her money back
An example of a fixed expense is
Home rental payment.
To develop financial goals, one should
Identify specific, realistic goals that are measurable along with a time frame and an action plan
The number of personal financial records a household has to organize may seem overwhelming. How long should you keep documents relating to the purchase and sale of real estate?
Indefinitely
A personal balance sheet report
Items owned, amounts owed, and your net worth.
After having established a spending plan, it is important to
Keep track of your actual income and expenses.
Discretionary income equals
Money left over after paying for housing, food, and other necessities.
To calculate the time value of money, we need to consider all of the following except the
Type of investment.
