Chapter 1- finance
a
. If a $10,000 investment increases to $10,080 in one year, what is its rate of return? A. .8 percent B. 1.08 percent C. 8 percent D. 80 percent E. 108 percent
b
21. A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n) A. Insurance prospectus. B. Financial plan. C. Budget. D. Investment forecast. E. Statement.
c
27. The consumer price index reflects: A. The prices of products and services in the United States B. The prices of products and services around the world C. The average change in prices of products and services of urban consumers D. The change in prices of products and services around the world E. None of the above
d
28. The actual cost of living increase for a household will be: A. Greater than the inflation rate as reported by the CPI since the index excludes the product or service with the highest inflation rate for the past 12 months B. Lower than the inflation rate as reported by the CPI since the index excludes the product or service with the lowest inflation rate for the past 12 months C. Equal to the inflation rate as reported by the CPI since it includes all products and services whether or not the prices have changed in the past 12 months D. Either greater than or less than the inflation rate as reported by the CPI depending on the household's cost of necessities purchased E. Zero since the CPI does not measure consumer price changes
b
29. The Rule of 72 is: A. A tool to determine the number of years until retirement for an employee B. Used to estimate how long it takes for prices to double using a given annual inflation rate C. The legal code for requiring companies to provide a match on retirement savings D. Used to calculate interest rates for savings E. The number of steps required to complete a financial plan
c
30. Who is most likely to benefit by inflation? A. Retired people B. Lenders C. Borrowers D. Low-income consumers E. Government
d
31. Lower consumer saving and investing is likely to be accompanied by A. Lower union wages B. Lower interest rates C. Lower production costs D. Higher interest rates E. Higher exports
c
32. An investor should expect to receive a risk premium for A. Expanded exports B. Lower consumer prices C. Higher uncertainty about getting his/her money back D. Reduced availability of investments E. Expected lower inflation
a
33. Which of the following would increase the interest rate for a loan? A. Poor credit rating B. Higher down payment C. Constant interest rates D. Lower consumer prices E. Short time to maturity
b
34. 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? A. General interest rates are very low B. His credit rating is poor because of his late payments C. He already has a student loan outstanding D. Recent graduates are not allowed to have more than $25,000 in debt outstanding E. Interest rates must be tied to the CPI
e
40. Which of the following long-term goals is stated most clearly? A. Buy a car for less than $17,000 within 6 months B. Retire in 10 years at age 65 C. Purchase a house with a mortgage no greater than $150,000 within 3 years D. Set up an emergency fund E. Invest $50 per month for the next 18 years for my nephew's college fund41.
c
41. Which of the following intermediate goals is stated most clearly? A. Buy a car for less than $17,000 within 6 months B. Retire in 10 years at age 65 with $2,000,000 in my 401(k) account C. Purchase a house with a mortgage no greater than $150,000 within 3 years D. Set up an emergency fund E. Invest $50 per month for the next 18 years for my nephew's college fund
d
42. Which of the following goals would be the easiest to implement and measure? A. Invest $2,000 a year for retirement. B. Reduce our debt payments. C. Save funds for an annual vacation. D. Save $100 a month to create a $4,000 emergency fund. E. Spend less each month.
c
43. The goal of investing $50 per month for the next 18 years for your nephew's college fund is a(n) __________ goal. A. Short-term B. Intermediate C. Long-term D. Intangible E. Durable
a
44. Many Americans have money problems because of A. Poor planning and weak money management habits B. Too many clearly defined goals C. Proper use of credit D. Not enough advertising to make effective decisions E. Controlled spending
e
45. Fran Gardner has a goal of "saving $25 per month for a TV". Fran's goal lacks A. Measurable terms B. A realistic perspective C. An action-orientation D. A specific objective E. A time frame
e
46. Which of the following is correct? A. A car purchase is a consumable-product goal B. Entertainment is a durable-product goal C. Appliances and sporting equipment are intangible-purchase goals D. Leisure and education are durable-product goals E. Food and clothing are consumable-product goals
c
55. If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future. A. Less B. The same as C. More D. Either less or the same as E. Either the same as or more
d
56. To calculate the time value of money, we need to consider all of the following except the A. amount of the savings. B. Annual interest rate. C. Length of time the money is invested. D. Type of investment. E. Principal.
c
57. Future value computations are also referred to as A. Discounting. B. Add-on interest. C. Compounding. D. Simple interest. E. An annuity.
a
58. Present value computations are also referred to as A. Discounting. B. Add-on interest. C. Compounding. D. Simple interest. E. An annuity.
e
59. Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 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? A. Present value of a single amount B. Future value of a single amount C. Simple interest D. Present value of an annuity E. Future value of an annuity
d
60. Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments? A. Present value of a single amount B. Future value of a single amount C. Simple interest D. Present value of an annuity E. Future value of an annuity
d
65. Financial decisions related to income include all of the following except A. Spending B. Saving C. Sharing D. Taking E. All of these are financial decisions
c
80. If Patty Shoemaker estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4%, what should her weekly grocery bill be in 3 years? A. $30.00 B. $40.00 C. $112.50 D. $112.60 E. $121.60
b
81. Annual earnings on a $500 Certificate of Deposit earning 4.50% would be A. $20.00 B. $22.50 C. $25.00 D. $500.00 E. $545.00
a
82. Randy Hill wants to retire in 20 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. A. $17,460 B. $18,000 C. $5,727 D. $25,000 E. None of the above
c
22. The major function of a financial plan is to A. Reduce taxes. B. Increase savings. C. Achieve financial goals. D. Improve your credit rating. E. Obtain adequate insurance protection.
c
23. An advantage of personal financial planning is: A. The use of low-interest savings B. Increased impulse spending C. Increased control of financial affairs D. More credit card debt E. Less monitoring of investments
d
24. The stages that an individual goes through based on stages in the family and financial needs is called the A. Financial planning process B. Budgeting procedure C. Personal economic cycle D. Adult life cycle E. Tax planning process
d
25. Sally Smith's friends have told her that they think she should consider a visit to a personal financial planner. Why do you think her friends made the suggestion? A. Sally usually saves 10 percent of her paycheck for long-term goals. B. Sally has no credit card debt. C. Sally tracks her investments and makes changes to her allocations once per year. D. Sally plans to quit her job and volunteer for local organizations. E. Sally has used a budget for years.
a
26. John Jones was laid off from his job two months ago. He just received an offer for a position that pays 2/3 the salary of his old job. Why should he set up a financial plan? A. To increase the effectiveness of obtaining, using, and protecting his financial resources. B. To decrease control of his financial affairs regarding debt. C. To accept the loss of freedom from financial worries due to his new position. D. To learn how to manage with less savings. E. To find out why he was laid off.
a
35. Attempts to increase income are part of the _____________ component of financial planning. A. Obtaining B. Planning C. Saving D. Borrowing E. Spending
e
36. The 'borrowing' activity in a financial plan relates to A. Acquiring adequate insurance coverage B. Investing for long-term growth C. Setting up a budget D. Obtaining financial resources from employment, investments or ownership E. Maintaining control of credit-buying habits
d
37. The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning. A. Sharing B. Savings C. Obtaining D. Borrowing E. Protecting
a
38. A question associated with the saving component of financial planning is: A. Do you have an adequate emergency fund? B. Is your will current? C. Is your investment program appropriate to your income and tax situation? D. Do you have a realistic budget for your current financial situation? E. Are your transportation expenses minimized through careful planning?
a
39. Which of the following short-term goals is stated most clearly? A. Buy a car for less than $17,000 within 6 months B. Retire in 10 years at age 65 with $2,000,000 in my 401(k) account C. Purchase a house with a mortgage no greater than $150,000 within 5 years D. Set up an emergency fund E. Invest $50 per month for the next 18 years for my nephew's college fund
c
47. _________ goals relate to infrequently purchased, expensive items. A. Short-term B. Intangible-purchase C. Durable-product D. Consumable-products E. Intermediate
d
48. To develop a financial plan, one should A. Set several general goals for the short-term B. Only set long-term goals after short-term goals have been accomplished C. Focus on intermediate goals first D. Identify specific, realistic goals that are measurable along with a time frame and an action plan E. Not worry about whether or not the goals can be achieved based on one's income and life situation
d
49. The goal of purchasing a long-term care insurance policy would be most appropriate for A. A young couple without children. B. A single mother with a preschool daughter. C. A recent college graduate. D. A single adult nearing retirement age. E. An extremely wealthy executive.
b
50. Opportunity cost refers to A. Money needed for major consumer purchases. B. The trade-off of a decision. C. The amount paid for taxes when a purchase is made. D. Current interest rates. E. Evaluating different alternatives for financial decisions.
b
51. Rob Redbird is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finds a substitute for his shift so he can attend the concert, what kind of cost is he incurring? A. Fixed B. Opportunity C. Unexpected D. Unavoidable E. Tangible
b
52. Which of the following is an example of opportunity cost? A. Renting an apartment near school B. Saving money instead of taking a vacation C. Organizing income tax records D. Purchasing automobile insurance E. Using a personal computer for financial planning
d
53. An example of a personal opportunity cost would be A. Interest lost by using savings to make a purchase. B. Higher earnings on savings that must be kept on deposit a minimum of six months. C. Lost wages due to continuing as a full-time student. D. Time comparing several brands of personal computers. E. Having to pay a tax penalty due to not having enough withheld from your monthly salary.
d
54. The time value of money refers to A. Personal opportunity costs such as time lost on an activity. B. Financial decisions that require borrowing funds from a financial institution. C. Changes in interest rates due to changes in the supply and demand for money in our economy. D. Increases in an amount of money as a result of interest earned. E. Changing demographic trends in our society.
b
61. Tim Calibe 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? A. Present value of a single amount B. Future value of a single amount C. Simple interest D. Present value of an annuity E. Future value of an annuity
e
62. Rebecca Gladyn plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school, and she wants to save money each month to reach her goal. What type of computation should she use? A. Present value of a single amount B. Future value of a single amount C. Simple interest D. Present value of an annuity E. Future value of an annuity
b
63. Paul Jacoby 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? A. Present value of a single amount B. Future value of a single amount C. Simple interest D. Present value of an annuity E. Future value of an annuity
c
64. The first step of the financial planning process is to A. Develop financial goals. B. Implement the financial plan. C. Analyze your current financial situation. D. Evaluate and revise your actions. E. Create a financial plan of action.
d
66. Place the following steps for a personal financial plan in the proper order: 1. Review and revise your plan 2. Identify alternative courses of action 3. Create and implement your financial action plan 4. Determine your current financial situation 5. Evaluate your alternatives 6. Develop your financial goals A. 6, 1, 2, 5, 3, 4 B. 4, 2, 6, 5, 3, 1 C. 3, 6, 4, 2, 5, 1 D. 4, 6, 2, 5, 3, 1 E. 6, 2, 5, 4, 1, 3
e
67. The uncertainty associated with decision making is referred to as A. Opportunity cost. B. Selection of alternatives. C. Financial goals. D. Personal values. E. Risk.
a
68. The changing cost of money is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal
b
69. The rising of prices that causes changes in buying power is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal
c
70. The loss of a job is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal
e
71. The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk. A. interest-rate B. inflation C. income D. liquidity E. personal
e
72. The potential for difficulty to convert an investment to cash is referred to as ____________ risk. A. interest-rate B. inflation C. income D. personal E. liquidity
a
73. Changes in income, values, and family situation make it necessary to A. Evaluate and revise your actions. B. Implement the financial plan. C. Develop financial goals. D. Analyze your current personal and financial situation. E. Create a financial plan of action.
a
74. The step in the personal financial planning process that follows "Create and implement your financial action plan" is A. Review and revise your financial plan B. Identify alternative courses of action C. Determine your current financial situation D. Evaluate your alternatives E. Develop your financial goals
d
75. Using the services of financial institutions or specialists (such as insurance agents or investment brokers) will be most evident in your effort to A. Develop financial goals. B. Evaluate and revise your actions. C. Analyze your current financial situation. D. Implement your financial plan. E. Create a financial plan of action.
e
78. If a $10,000 investment earns a 4 % annual return, what should its value be after one year? A. $4,000 B. $4,100 C. $10,000 D. $10,040 E. $10,400
d
79. If a $10,000 investment earns a 7% annual return, what should its value be after 5 years? A. $10,035 B. $14,070 C. $14,700 D. $14,030 E. $14,300
c
If inflation is expected to be 9 percent, how long will it take for prices to double? A. 6 years B. 7 years C. 8 years D. 12 years E. 18 years