FIN 3325 Exam 1

The difficulty of converting savings and investments to cash is referred to as ____________ risk.

Liquidity

Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?

Liquidity ratio

If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?

$1000

The saving component of financial planning focuses on long-term security and includes:

A regular savings plan for emergencies

A budget deficit would result when a person's or family's

Actual spending exceeds planned spending

The document that would be most useful to plan spending and saving to achieve financial goals is the

Budget

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?

Future value of a single amount

Jennifer Rodriguez plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school, and she wants to save money each month to reach her goal. What type of computation should she use?

Future value of an annuity

An investor should expect to receive a risk premium for

Higher uncertainty about getting his/her money back

To develop financial goals, one should

Identify specific, realistic goals that are measurable along with a time frame and an action plan

The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.

Inflation

Common stock and bond brokerage statements are an example of a(n) ____________ record.

Investment

The 'borrowing' component in a financial plan relates to

Maintaining control over credit-buying habits

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal tax rate.

When creating a personal balance sheet, which of the following is a current liability?

Medical Bill

The Rule of 72 is:

Used to estimate how fast prices will double using a given annual inflation rate

Opportunity cost refers to

What you give up by making a choice.

Income that is not subject to tax is called

tax-exempt income

Present value computations are also referred to as

Discounting

A current ratio of 2 means

$2 in liquid assets are available for every $1 of current liabilities

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?

$250

Rebecca Wilson budgeted $395 for a new wardrobe in June. She actually spent $425. What is her budget variance?

$30 deficit

The main purposes of personal financial statements are to

-Report your current financial position. -Measure your progress toward financial goals. -Maintain information about your financial activities. -Provide data for preparing tax forms or applying for credit. *all of these are correct

Which of the following is a component of money management?

-Storing and maintaining personal financial records and documents. -Creating a balance sheet. -Creating and implementing a plan for spending and saving. -Creating a cash flow statement. *All of these are components of money management

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

A debt ratio of 0.5 indicates

For every dollar of net worth, debt equals $0.50.

Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?

A Roth IRA

Connie thinks that her salary and tax rate for next year will be lower than for this year. What step should she take to minimize her taxes in the current year?

Accelerate deductions

When calculating federal income taxes, what increases "gross income"?

Alimony received

Which of the following situations describes a person who could be insolvent?

Assets $40,000; liabilities $55,000

The equation to calculate net worth is

Assets - Liabilities = Net Worth

The tax based on the total tax due divided by taxable income is called the

Average tax rate

Another name for a statement of financial position is a

Balance sheet

The difference between the amount budgeted and the actual amount received or spent is called the

Budget variance

Adjustments to income include all of the following except

Charity contributions

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction?

Miscellaneous expenses that exceed 2% of AGI

When creating a personal balance sheet, which of the following is an investment asset?

Retirement account such as 401k

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

Social security taxes

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Subtract his itemized deductions

Which of the following is NOT an action that can reduce your taxes?

Taking out a consumer loan

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice

Tax avoidance

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

Taxpayer

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

Gross income less Adjustments to Income equals

adjusted gross income

Money management refers to

day to day financial activities

All of the following can reduce your taxes today except investing in

A Roth IRA

A tax imposed on the value of a person's property at the time of death is called a(n

Estate tax

Every decision involves uncertainty, which is referred to as

Evaluating risk

A tax due on the purchase of gasoline is called a(n)

Excise tax

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 accumulated for his purchase?

Future value of an annuity

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels

Income tax

An advantage of effective personal financial planning is:

Increased control of financial affairs

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

More

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a

Personal balance sheet

Which of the following appears as a cash outflow on a cash flow statement?

Variable expenses and loan payment

A personal balance sheet reports

Items owned, amounts owed, and your net worth

Future value computations are often referred to as

Compounding

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?

Debt-payments ratio

Which of the following will increase the net worth of a household?

Decrease amount owed on credit cards

Individuals can file their federal taxes using all of the following except

Deliver in person

When calculating federal income taxes, "gross income" includes all of the following except

Earned income credit

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

Financial Plan

Which of the following is an example of a financial opportunity cost?

Foregoing wages to attend school

Paul Davis wants to deposit a lump sum of money today for a vacation that he plans to take to Asia after he graduates from Graduate School. Which formula should he use to determine the amount of money he will have available for his vacation?

Future Value of a single amount

Which of the following long-term goals is stated most clearly using the SMART approach?

Invest $50 per month for the next 12 years for my nephew's college fund

After having established a spending plan, it is important to

Keep track of your actual income and expenses

Which of the following are two personal financial statements that you create yourself?

Personal balance sheet and cash flow statement

Which of the following would increase the interest rate for a loan?

Poor credit rating

An advantage of investing in a 401(k) plan is the

Possibility of receiving an employer match on your contributions.

Rhonda Miller wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

Present value of annuity

The tax that is a major source of revenue for local governments is called a(n)

Real estate property tax