Personal Finance Quizzes CH 1, 2, 4, 5, 6, 7
To calculate the present value of an annuity you need to know all the following EXCEPT
The future value of the cash flows
A 1099 Form is used to report other or miscellaneous incomes to you and to the IRS.
True
A good financial plan must be flexible to respond to unanticipated needs or sudden changes in circumstances.
True
An employer sends each employee a Form W-2 at the end of each year showing what taxes were withheld.
True
An example of a demand deposit account is a checking account.
True
Budget projections are based on personal history, microeconomic factors, and macroeconomic factors.
True
Business cycles include periods of expansion and contraction as measured by the economy's productivity.
True
Business profits are added to total income, and business losses are deducted from total income.
True
Calculating the rate at which time affects money requires some judgment about forecasting cash flows.
True
Credit is used as a cash management tool or as short-term financing for consumption.
True
Default risk is defined by the borrower's ability to repay the interest and principal.
True
Different kinds of income must be defined and declared on specific income schedules, and are subject to tax.
True
Excise taxes tax specific consumption items, such as alcohol, cigarettes, or cars.
True
Good financial decision making requires that you recognize sunk costs and their consequences.
True
In financial planning, risk is a cost, and choice is a benefit.
True
Interest rate risk is the lender's risk of not being repaid enough to outweigh opportunity cost and provide a profit.
True
Investing in assets or selling capital can be more profitable than selling labor.
True
Irregular cash flows may have a significant impact on annual budgets.
True
Laws such as the Fair Debt Collection Act protect consumers from unfair creditor practices.
True
Money sitting idle is an opportunity cost.
True
Most states model their tax systems on the federal model or base their tax rates on federally defined income.
True
Non-recurring budget items allow for long-term planning because they happen less often.
True
One way to diversity investments is to have a balanced portfolio.
True
Schedule SE is for reporting self-employment tax, which represents a contribution to Social Security.
True
Taking a second job, becoming unemployed, entering a new career, or becoming self employed are as important as career choices in personal financial planning.
True
The U.S. tax code distinguishes between a business and a hobby that earns or loses money.
True
The U.S. tax code is based on the idea that everyone should help finance the government according to ability to pay.
True
The discount rate is the opportunity cost of not having liquidity.
True
The markets for liquidity are the money markets and the capital markets.
True
The more financial activity you have, the shorter your budget period should be.
True
The nominal future value of your money may be greater or less than the present value.
True
The operating budget accounts for recurring incomes and expenses.
True
The purpose of pro forma financial statements is to show the consequences of choices.
True
The riskier the borrower seems to be, the fewer the sources of credit.
True
Understanding large-scale economic patterns and factors indicating the health of an economy can help you make better financial decisions.
True
Wages or salary is income from employment or self-employment.
True
You should evaluate your feasible choices, calculating the benefits, explicit costs, implicit costs, and strategic costs of each choice.
True
You use excess liquidity or surplus cash to buy an asset to store wealth until you resell the asset.
True
Your taxable income is your Adjusted Gross Income after deductions, exemptions, and credits.
True
Cash or an asset that can be easily and quickly converted to cash is called
a liquid asset
A comprehensive budget includes projections of recurring incomes and expenses. non-recurring expenditures. non-recurring income. a. and b. a., b., and c.
a. and b.
Of the following saving instruments, which is/are most likely to give you the highest price for your liquidity or the highest compensation for your opportunity cost and risk? Certificates of Deposit Money market mutual funds Time deposit a. and b. a., b., and c.
a. and b.
When deciding on whether to receive cash flows over time or in a lump sum, you should consider present value vs. future value. the rates at which time affects value. the probabilities of winning the lottery. a. and b. a., b., and c.
a. and b.
Time affects liquidity through cash flows. opportunity costs. uncertainty and risk. a. and b. a., b., and c
a., b., and c
Calculating the future value of a series of cash flows is useful when saving for college, a wedding, or retirement. planning for specific cash requirements in the future. deciding whether to save, reduce debt, or invest. a. and b. a., b., and c.
a., b., and c.
Creating a budget involves projecting realistic behavior. questioning your assumptions. reviewing your financial records. a. and b. a., b., and c.
a., b., and c.
Financial management is significantly influenced by microeconomic factors. macroeconomic factors. personal factors. a. and b. a., b., and c.
a., b., and c.
If they find a discrepancy in your tax return, the IRS may follow up by mail or personal interview. conduct a full audit. request verification. a. and b. a., b., and c.
a., b., and c.
Taxable individual income includes distributions from trusts. stock dividends. interest from banks. a. and b. a., b., and c.
a., b., and c.
The purpose of pro forma financial statements is to show projected future value. consequences of choices. scenarios for financial planning. a. and b. a., b., and c.
a., b., and c.
You should have at least one full year's worth of data on incomes and expenditures to see seasonal variations. periodic items. monthly averages. a. and b. a., b., and c.
a., b., and c.
Your can claim exemptions for dependents, including children. elderly parents. disabled siblings. a. and b. a., b., and c.
a., b., and c.
Your career choice will have the greatest impact on your financial risk. wealth accumulation. income. b. and c. a. and c.
b. and c.
The most common uses of debt by consumers are
car loans and home mortgages
Banks that focus on operating cash flow management for businesses are the
commercial banks
When faced with uncertainty of an alternative that involves an independent event it is often helpful to be able to calculate its
expected value.
The appropriate time period for the budget process is based on being conservative in your expectations. reaching your financial goals. getting manageable and meaningful data. a. and b. a., b., and c.
getting manageable and meaningful data.
If you get into trouble with debt you should first
inform lenders and get debt counseling.
All the following assets or activities would be appropriate for developing a specialized budget EXCEPT
operating expenses.
If you pay proportionally more taxes due to the more income, you have then you are paying a
progressive tax
The ability to delay payment for different items from different vendors, up to an amount limit, during a period of time is called
revolving credit
Financial planning depends on understanding the relationship between goals and
sources of income over time
The higher the lender's risk, then
the higher your cost of debt.
Future capital expenditures can be projected on the basis of financial history. recurring incomes. the time value of money. a. and b. a., b., and c.
the time value of money.
The financial decision making process is complicated by all of the following factors EXCEPT
the use of information in planning.
The benefit of debt is that you can
use other people's money
A good credit rating would be based on all the following criteria EXCEPT
you depend on credit for regular expenses.
Your credit score is determined primarily on the basis of
your credit history
If your credit score is 400, you have near-perfect credit and pose little default risk to lenders.
False
In the U.S., currency stability and inflation both remained high during the 1980s and 1990s.
False
Professional tax assistance and tax preparation software are costly and difficult to find.
False
Property is an example of an intangible asset.
False
Short-term capital gains (losses) are taxed at the same rate as long-term capital gains (losses).
False
The best ways to get out of debt are to borrow enough to cover it all or to declare personal bankruptcy.
False
The greater the opportunity cost and/or risk, the less value is affected.
False
The longer you lend your liquidity, the less compensation you need for your increased opportunity cost and risk.
False
The time value of money can be understood but not calculated concretely.
False
There are four possible outcomes when you flip a coin, and there is a 25% change of each.
False
You can trade in the capital market when you have a budget deficit.
False
As the risks of waiting for liquidity increase, the present value, and therefore the future value, of an annuity
Increases.
Examples of annuities include all the following EXCEPT
One-time cash flows.
Tariq's short-term goal is to purchase a car, but his current situation does not provide the means. Which of the following choices would most likely provide the greatest longer-term benefit with the least risk and the lowest cost?
Save for a car
If you are in the 25% or higher tax brackets, your tax rate on long-term capital gains (on assets held more than one year) is
15%
Margot has four uncertain choices and their weighted probabilities of happening with the expected result are 20%, 45%, 15%, and
20%
Budget variances for incomes and expenses should be analyzed to see if they are caused by a difference in actual quantity, actual price, or both. projected incomes and/or expenditures. microeconomic or macroeconomic factors. a. and b. a., b., and c.
Actual quantity, actual price, or both.
Which of the following assets reduces expenses but does not increase income or store wealth?
Car
The information you write on an application for consumer credit is used to determine your
FICO or credit score
As the time increases between you and your liquidity, the present value of your future liquidity increases.
False
Capital expenditures are usually part of a short-term plan or goal.
False
Different causes of a variance point to the same remedies or opportunities.
False
Financial planning guarantees that you will be able to take advantage of opportunities and avoid disappointments.
False
If debt creates additional expense without enough additional benefit, it's still worth it.
False
Assets create income through all the following ways EXCEPT
employment income.
Shannon's monthly expenses exceed her monthly income. She has no way to increase her income just now, so her best choice to reduce her budget deficit is to
Find ways to cut spending.
Ryan has a choice of paying cash or over time for a smartphone. What would be his opportunity cost of paying over time? He would lose liquidity. He would lose income from savings. He would ultimately pay more. a. and b. a., b., and c.
He would ultimately pay more.
Diversifying your savings in a series of instruments with different maturities is a strategy known as
Laddering
A budget deficit is not sustainable; it is not financially viable.
True
A budget should never be merely followed, but should constantly be revised to reflect new information.
True
By law you are entitled to one free credit report per year from each of the three credit rating agencies.
True
Credentialed credit counselors can help you create a budget and negotiate with creditors.
True
Depending on your tax bracket, your income is taxed at a rate of between 10% and 38%.
True
Distance or delay from liquidity creates risk and opportunity costs.
True
Diversification is a good risk management strategy because it spreads risk.
True
FICA and Medicare taxes are withheld from your wages in addition to income taxes.
True
Financial advisors may be working as accountants, investment advisors, tax advisors, estate planners, or insurance agents.
True
Goals should be short-term, intermediate, and long-term.
True
If you underpaid or overpaid your taxes by too large an amount, you may have to pay a penalty and/or interest.
True
In a credit freeze, as a result of suspicion of identity theft or fraud, no one but you can access your credit file.
True
It's generally more valuable to have liquidity sooner rather than later.
True
Periods of contraction may be seen as market corrections in which balance in the economy is restored after becoming unbalanced during a period of expansion.
True
The budget planning process is a useful financial planning tool.
True
The budget process is a recursive process that begins and ends with defining or redefining goals.
True
The value of both equity and debt includes the benefits of having the asset sooner rather than later.
True
Time discounts value.
True
Whatever his or her professional classification, any financial advisor you choose to work with should be certified in your state.
True
When risk is low, it makes more sense to wait for liquidity.
True
When you save you are lending liquidity to a bank, which pays you back in interest.
True
You finance your life and way of living through income you earn by selling your labor or capital.
True
Your Adjusted Gross Income is further adjusted by deductions, exemptions, and credits.
True
When deciding on whether to receive cash flows over time or in a lump sum, you should consider present value vs. future value. the rates at which time affects value. the probabilities of winning the lottery. a. and b. a., b., and c.
a. and b.
In which life stage(s) will you likely have low taxable income and fewer deductions or exemptions? Young adulthood Middle adulthood Retirement a. and c. b. and c.
a. and c.
In financial planning, effective goals are timely. specific and measurable. realistic and attainable. b. and c. a., b., and c.
a., b., and c.
Sources of tax information include the IRS. employers, banks, or brokerages. professional tax preparers or software. a. and b. a., b., and c.
a., b., and c.
Tax advantages were created to encourage certain financial goals, including mortgage interest deductions. defined contribution plans. education and health care savings accounts. a. and b. a., b., and c.
a., b., and c.
The budget process begins with a thorough understanding of your current financial condition. financial statements. desires and choices. a. and b. a., b., and c.
a., b., and c.
The future value of an annuity increases when the present value increases. the time value increases the rate of compounding increases a. and b. a., b., and c.
a., b., and c.
With a line of credit you can borrow money as needed, up to a limit. pay down each loan as desired. pay interest only on the outstanding balance. a. and b. a., b., and c.
a., b., and c.
You must pay income taxes on IRA distributions. unemployment compensation. Social Security benefits. a. and b. a., b., and c.
a., b., and c.
Individual factors that affect financial thinking include business cycles and employment rate. family structure and health. career choice and age. b. and c. a. and c.
b. and c.
To avoid unwelcome adjustments, you should
be conservative in your expectations.
The budget process begins with
defining goals and gathering data.
Time affects value by
discounting value.
Examples of recurring expenditures are purchases of durable goods. living expenses. capital improvements. a. and b. a., b., and c.
living expenses.
Personal finance is about all of the following processes EXCEPT
preventing exposure to risks.
The relationship between your financial statements and your budget is that together they allow you to
project the effects of your financial choices.
Periods of contraction in the economy often lead to
reduced returns on investment.
The cash budget's greatest value is in clarifying
risks and choices in the timing of cash flows.
In addition to gross domestic product and rates of employment and unemployment, key measures of the health of an economy include all the following EXCEPT
savings and loans.
Financial planning depends on understanding the relationship between goals and
sources of income over time.
The time value of money is an important concept in
valuing a series of future cash flows.
The U.S. government levies taxes on income from all of the following sources EXCEPT
veterans benefits
Examples of non-recurring expenditures are
window replacements.
If you had a budget deficit, the best way to reduce it among the following choices would be to
work more.
Borrowing capital has all of the following consequences EXCEPT
you have equity
Head-of-Household filing status is for a family of one adult with dependents.
True
Governments tax income because it is a way to tax broadly based on ability to pay.
True
A better investment asset is one that increases in value. creates a capital gain. stores wealth a. and b. a., b., and c.
A., B., and C.
Your total income can be adjusted for all the following items, which the U.S. government feels should not be taxed, EXCEPT
state and local fax refunds.
Taxable entities in the federal tax system include all of the following EXCEPT
tax-exempt entities.
The present value of a series of cash flows is equal to the sum of
the present value of each cash flow.
Taxes withheld from your wages or paid in advance include
FICA and Medicare.
Criteria for tax deductions, exemptions, and credits are stable and seldom change.
False
Income tax is a regressive tax; the higher the income the lower the rate.
False
Interest rates on loans are always lower than interest rates on savings.
False
It does not make sense to invest in an education before you sell your labor.
False
It's important to be able to perform financial calculations without the use of calculators or financial software.
False
The value of annuity does not depend on your discount rate or opportunity cost.
False
When opportunity costs are high, it makes more sense to wait for liquidity.
False
Investments in assets may be diversified by
Investing in a variety of assets.
Erin needs additional memory and an external back-up drive for her computer but her resources are limited. Because there is a special price for the brand she wants, she decides to get the memory. What is her opportunity cost?
Not having the back-up drive
Which of the following statements is true?
The liquidity of an asset affects its value.
Personal financial planning includes decision making about earning, spending, saving, and investing.
True
Selling an asset can result in a capital gain or capital loss.
True
The best protection against a possible audit is to have verification for all the incomes and expenses you report.
True
After you pay taxes you should keep all your employment tax records
for at least four years.
In financial planning the best strategy is to
have liquidity sooner rather than later.
An effect of deflation is that your money
is worth more and buys more.
In financial planning, understanding your current financial situation by analyzing your assets, debts, income, and expenses
reveals ways of achieving your goals
The relationship between the passage of time and the value of assets is called
the time value of money.
After identifying choices, the next steps in the financial planning process involve all the following calculations EXCEPT
the value of goals.
Characteristics of financial advisors to look for include A) manner of compensation. B) ability to give subjective advice. C) professional training. D) a. and c. E) a., b., and c.
D
Financial advisors may assist through all the following services EXCEPT
career planning.
A sales tax taxes your
consumption financed by income