FIN 100: Chapter 1 quiz

Place the following steps for a personal financial plan in the proper order: 1. Review and revise the financial plan 2. Identify alternative courses of action 3. Create and implement your financial action plan 4. Determine your current financial situation 5. Evaluate alternatives 6. Develop your financial goals.

4,6,2,5,3,1

Inflation is most harmful to people with incomes expected to increase. True or False

False

Risks associated with many financial decisions are easy to identify and evaluate. True or False

False

There are only 3 methods of calculating time value of money. True or false

False, there are five: formula calculation, time value of money tables, financial calculators, spreadsheet software, and websites/apps.

Immediate goals are usually achieved within the next year or so. True or False

False. Intermediate goals have a time frame of 2-5 years.

When prices are increasing at a rate of 4 percent, the cost of products would double in about 18 years. True or False

True Use the rule of 72: (72/4=18 years)

Many Americans have money problems because of: a) Poor planning and weak money management habits b) too many clearly defined goals c) proper use of credit d) not enough advertising to make effective decisions e) controlled spending

a

The saving component or financial planning focuses on long-term security and includes: a) a regular savings plan for emergencies b) a current will c) bankruptcy counseling d) a realistic budget for your current financial situation e) minimizing transportation expenses through careful planning

a

The step in the personal financial planning process that follows "Create and implement your financial action plan" is a) Review and revise the financial plan b) Identify alternative courses of action c) Determine current financial situation d) Evaluate alternatives e) Develop your financial goals

a

Which of the following short-term goals is stated most clearly using the SMART approach? a) Buy a car for less than $15,000 within 6 months b) Retire in 10 years at age 65 with $2,000,000 in my 401(k) account c) Purchase a house with a mortgage no greater than $150,000 within 5 years d) Set up an emergency fund e) Invest $50 per month for the next 12 years for my nephew's college fund

a

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. a) $17,460 b) $18,000 c) $5,727 d) $25,000 e) none of the above

a. Use the formula for the future value of an annuity. FV=Annual deposit x factor, so factor= [(1.1^20-1)/.1]=57.275 $1,000,000/57.275= $17,460 rounded.

Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use? a) Present value of a single amount b) future value of a single amount c) single interest d) present value of an annuity e) future value of an annuity

b) future value of a single amount

Annual earnings on a $500 Certificate of Deposit earning 3% would be: a) $5.00 b) $15.00 c) $25.00 d) $30.00 e) $500.00

b. use the formula for future value of a single amount FV= PV(1+i)^n and subtract FV-initial value

An advantage of effective personal financial planning is: a) the use of low-interest savings b) increased impulse spending c) increased control of financial affairs d) more credit card debt e) less monitoring of investments

c

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future. a) less b) the same as c) more d) either less or the same as e) either the same as or more

c

If inflation is expected to be 8 percent, how long will it prices to double? a) 6 years b) 7 years c) 9 years d) 12 years e) 18 years

c

The consumer price index measures: a) The prices of goods and services in the United States b) The prices of goods and services in Bolivia c) The average change in prices of goods and services of urban consumers d) The change in prices of goods and services around the world e) None of the above

c

Who is less likely to be harmed by inflation? a) retired people b) lenders c) borrowers d) fixed income consumers e) financial regulators

c

_________ goals relate to infrequently purchased, expensive items. a) short-term b) intangible-purchase c) durable-product d) consumable-products e) intermediate

c

The stages in the family situation and financial needs of an adult is called the: a) Financial planning process b) budgeting procedure c) personal economic cycle d) adult life cycle e) tax planning process

d

To develop financial goals, one should: a) Set several general goals for the short-term b) Only set long-term goals after short-term goals have been accomplished c) Focus on immediate goals first d) Identify specific, realistic goals that are measurable along with a time frame and an action plan e) Not worry about whether or not the goals can be achieved based on one's income and life situation

d

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? a) $2,000 b) $11,970 c) $18,000 d) $22,054 e) $30,500

d. use the formula PV[(1-(1+r)^-n)/r)] which is the formula for future value of an annuity.

Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase? a) present value of a single amount b) future value of a single amount c) simple interest d) present value of an annuity e) future value of an annuity

e

Which of the following long-term goals is stated most clearly using the SMART approach? a) buy a car for less than $15,000 within 6 months b) retire in 10 years at age 65 c) purchase a house with a mortgage no greater than $150,000 within 5 years d) set up an emergency fund e) invest $50 per month for the next 12 years for my nephews college fund

e

Financial plans are only created by financial planners. True or false

false

The life situation of a household includes a combination of personal factors such as age, income, household size, and personal beliefs. True or false

true