Acctg 45 Ch.1
Financial decisions are affected by a person's life situation (income, age, household size, health), personal values, and economic factors (prices, interest rates, and employment opportunities)
The major elements of financial planning are obtaining, planning, saving, borrowing, spending, managing risk, investing, and retirement and estate planning
Financial intermediaries' main goal is to
charge an amount that will pay them to operate and charge an adequate interest rate
How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)
decreases the future value
After putting your financial plan to work, you should periodically review and revise your plan, especially if you have all of the following, except
develop your goals
The variable that you are solving for in a future value of a lump sum problem is
future value
The variables in a present value of an annuity problem include all of the following, except
future value
1- Goals that are SMART, include all of the following except
meaningful
The primary goal of the Users in the Financial system is to
obtain funds for the least cost / lowest interest rates
The variables in a future value of a lump sum problem include all of the following, except
payments
The variables in a present value of a lump sum problem include all of the following, except
payments
The variable that you are solving for in a present value of a lump sum problem is
present value
The variables in a future value of an annuity problem include all of the following, except
risk tolerance
A goal that would be considered measurable would be
saving $200 per month
The "Paralysis of Analysis" means
spending so much time creating a plan that you never put it into action
The variable that you are solving for in a future value of an annuity problem is
the future value
The variable that you are solving for in a present value of an annuity problem is
the present value
Goals that are SMART, include all of the following except
thoughtful
every decision involves a trade-off with things given up. Personal opportunity costs include time, effort, and health. Financial opportunity costs are based on the time value of money.
Future value and present value calculations enable you to measure the increased value (or lost interest) that results from a saving, investing, borrowing, or purchasing decision
How would a decrease in the interest rate effect the present value of a lump sum, single amount problem (all other variables remain the same)?
Increase the present value
If the providers in the financial system dramatically change their behavior by significantly reducing their savings, this has the potential to
Lead to higher interest rates
A common error made when solving a future value of an annuity problem is
Multiplying the annual deposit and the number of years before calculating the problem.
The first step in the financial planning process is to determine your current financial situation. This included reviewing all of the following expect current income, amount of savings, amount of expenses, debts owed, personal values
Personal values
Personal financial planning involves the following
1. Determine your current financial situation 2. Develop financial goals 3. Identify alternative courses of action 4. evaluate alternatives 5. create and implement a financial action plan 6. review and revise the financial plan
Key terms
Adult life cycle, bankruptcy, economics, financial plan, future value, inflation, opportunity cost, personal financial planning, present value, time value of money, values
How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)
Decrease the present value
Financial goals should take a SMART approach with goals that are
Specific, Measurable, Action-oriented, Realistic, and Time-based
