Bus 121-01 Ch. 1 Financial Planning in Action

If a $10,000 investment increases to $10,079 in one year, what is its rate of return?

0.79 percent ($10,000 × rate × 1 year) = $79 then $10,000 × rate = $79 then rate = $79/$10,000 = 0.0079 = 0.79%

If inflation is expected to be 8.60 percent, how long will it take for prices to double?

8.37 years Rule of 72: (72/8.60 = 8.37 years).

The major function of personal financial planning is to

Achieve personal economic satisfaction.

To develop financial goals, one should

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

Opportunity cost refers to

What you give up by making a choice.

If a $10,000 investment earns a 6% annual return, what should its value be after 6 years?

$14,190 This can also be calculated using the FV formula: $10,000 × (1 + 0.06)^6 = $14,190.

Annual earnings on a $500 Certificate of Deposit earning 4.40% would be

$22.00 $500 × 0.044 × 1 year = $22.00

Randy Hill wants to retire in 15 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.

$31,474 N = 15, I = 10, PV = 0, FV = 1,000,000. Solve for PMT: $31,474 (rounded).

Who is less likely to be harmed by inflation?

Borrowers

The consumer price index measures

The average change in prices of a fixed basket of goods and services of urban consumers.