Ch.1 quiz FIN3325
If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?
$15,010
Paul Davis wants to deposit 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
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
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
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
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
The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) __________ goal.
Long-term
To calculate the time value of money, we need to consider all of the following except the
Type of investment.
The Rule of 72 is:
Used to estimate how fast prices will double using a given annual inflation rate
If inflation is expected to be 8 percent, how long will it take for prices to double?
9 years
Annual earnings on a $500 Certificate of Deposit earning 3% would be
$15.00
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 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
The problem of bankruptcy is associated with overuse and misuse of credit in the ______________ component of financial planning.
Borrowing
Which of the following short-term goals is stated most clearly using the SMART approach?
Buy a car for less than $15,000 within 6 months
The first step of the financial planning process is to
Determine your current financial situation.
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
The consumer price index measures:
The average change in prices of goods and services of urban consumers
Opportunity cost refers to
The trade-off of a decision.
Jim Johnson was laid off from his job two months ago. He just received an offer for a position that pays 3/4 the salary of his old job. Why should he set up a financial plan?
To increase the effectiveness of obtaining, using, and protecting his financial resources.
The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.
inflation
Changes in the cost of money is referred to as ____________ risk.
interest-rate
The difficulty of converting savings and investments to cash is referred to as ____________ risk.
liquidity