Finance Exam 1

Balance Sheet

Also called a net worth statement or statement of financial position, reports what you own and what you owe.

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

Assets $40,000; liabilities $55,000

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

liquidity

For tax year 2017 (also the previous 4 years), the maximum amount that an individual can give another in a year without being subject to estate taxes is

$14,000.

A current ratio of 2 means

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

Place the following steps for a personal financial plan in the proper order:

-Determine your current financial situation -Develop your financial goals -Identify alternative courses of action - Evaluate alternatives -Create and implement your financial action plan -Review and revise the financial plan

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

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

A regular savings plan for emergencies

Annuity

A series of equal deposits or payments.

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

Actual spending exceeds planned spending

The main purposes of personal financial statements are to

All of the above are correct

Which of the following is a liquid asset?

All of the above are liquid assets

Assets

Cash and other tangible property with a monetary value.

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

Deliver in person

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?

Future value of an annuity

Adjusted Gross Income

Gross income after certain adjustments have been create.

A savor or an investor should expect to receive a risk premium for

Higher uncertainty about getting his/her money back

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?

His credit rating is poor which results in a higher interest rate

To develop financial goals, one should

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

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

Bankruptcy

Is set of federal laws allowing you to either restructure your debts or remove certain debts.

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

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.

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

Average Tax Rate

Total tax due dived by taxable income

The Rule of 72 is:

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

Budget

a specific plan for spending income; also called a spending plan.

Future value computations are often referred to as

Compounding

Fees, tips, and bonuses are forms of

Earned income

A tax due on the purchase of gasoline, alcohol and cigarettes is called a(n)

Excise tax

Which of the following is NOT a tax that most people pay?

Federal taxes on possessions

A debt ratio of 0.5 indicates

For every dollar of net worth, debt equals $0.50

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

A personal balance sheet reports

Items owned and amounts owed

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

Liquidity ratio

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

Loan payment

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

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper itemized deduction?

Miscellaneous expenses less than 2% of AGI

Assuming a tax rate of 25%, would you prefer a fully taxable investment earning 11.1% (Option A) or a tax exempt investment earning 7.7% (Option B)? (Assume the investments have the same credit quality and maturity)

Option A

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 an annuity