Exam 1 Fin

Sancho would like to know what his savings will be worth in 5 years if he can earn a 6% return on his investment. Which TVM variable would Sancho want to solve for?

FV

Mary uses her credit card frequently. Which of the following is the best strategy to minimize the amount of interest paid when using a credit card?

Pay off the credit card balance monthly

Financial educators often recommend that individuals should

Plan to use government benefits as an emergency source of income.

What is the difference between realized and recognized income?

Realized income occurs when money is earned, and recognized income is when realized income is taxed.

Steven makes $3395 per month. He pays $790 in taxes, $690 in rent, $440 on food (which includes eating out), $230 for a car payment, $150 in gas and maintenance, and $685 in recreation every month. What is Steven's surplus or deficit?

410

Assume Elizabeth earns $7.40 per hour. If she receives "time and a half" for any hours worked over 40 per week, how much will Elizabeth earn if she works 55 hours this week?

462.50

Assuming Barbara has $1100 today, approximately how long will it take Barbara to double her money if she can earn a 9% return on her investment? (Round answers to 1 decimal place, e.g. 52.7.)

8.0 years

Compared with other developed countries in the world, the United States has a(n) ___________ tax system.

progressive

An asset is:

something you own

A deficit in a budget means you are:

spending more then you can make.

Tax planning activities take advantage of which of the following?

tax loophole and tax deferral

income tax rates are determined by?

type of income earned, filing status, and amount of taxable income reported on the tax return.

Risk is the ______ associated with any physical, social, emotional, environmental, workplace, or financial activity. benefit.

uncertainty

tax evasion

underreporting recognizable income.

Which of the following best describes a procrastinator?

value the present more then future

Failure to file a tax return when you have earned taxable income as an employee

will result in a penalty from the IRS, even if it was an accident

Financial risk tolerance refers to your:

willingness to to take risk when outcome is uncertain

Roger owns a boat. As he prepares his balance sheet, what value should he use as a liability input for the boat?

The price remaining on the boat

Which of the following are potential liabilities associated with business ownership? I.TaxesII.DebtsIII.Lawsuits.

1 2 and 3

Which of the following elements influence your view of the financial world? I. Your risk tolerance II. How much you believe you control your financial future III. Knowledge about personal finance topics

1 2 and 3

ROTH IRAs may allow you to achieve which of the following? I.Tax free distributions.II.Tax-deferred growth.III.Reduce current taxable income.

1 and 2

Which of the following strategies is most likely to increase your confidence about your financial future? I. Saving money on a regular basis. II. Paying down debt as quickly as possible. III. Borrowing money to improve GDP.

1 and 2 only.

Your friend Lucia is a procrastinator. How can you best help her overcome this weakness? I. Create deadlines. II. Encourage hyperbolic discounting. III. Strengthen her confirmatory bias.

1 only

Elizabeth, age 28, earns $4840 per month. Every month she saves $500. Additionally, she has $3240 in outstanding credit cards and makes a $270 monthly payment of these cards. What is Elizabeth's approximate savings ratio? (Round answers to 2 decimal places, e.g. 52.75.)

10.33

If you had $1900 in an account earning 5.70% interest, how long (approximately) would it take for you to double your money to $3800?

13 years

Traditional IRAs may allow you to achieve which of the following? I.Tax free distributions.II.Tax-deferred growth.III.Reduce current taxable income.

2 AND 3 ONLY

If you purchase a regularly priced $45 shirt on sale and pay only $40, what will the sales tax be if the sales tax rate in your community is 7 percent?

2.80

Debra invested $120000 into a startup company this year. For the first time, she received a payment from the company for $30000. What was Debra's rate of return on her investment? (Round answer to 0 decimal place, e.g. 5275.)

25

How many inputs do you need to know before calculating a typical TVM formula?

3

All of the following statements are true, except:

As your debt to income ratio increases, your financial flexibility expands.

All of the following are sections of a budget, except:

Assets

The "A" in SMART stands for:

Attainable

How can someone turn a projected budget deficit into a surplus?

Both cut variable expenses and sell assets and use the proceeds as income.

Rodriguez would like to start his own business making jewelry. If he opens his business as a sole proprietor, in which of the following events would he be personally liable?

Both if a customer sued him for using lead in a child's ring and if his jewelry company failed to pay a debt.

The Rule of 72 provides an estimate of how long it will take money to

Double

Which of the following individuals will likely pay the highest rate of interest on borrowed money from a bank?

Douglas, who is borrowing money to pay for a vacation.

Tara's budget shows a projected deficit. What does this mean for Tara?

Either it means that she will need to borrow money to fund the deficit or it means that she will need to sell assets to fund the deficit.

Which of the following entities also reports income that you earned to the IRS?

Employers, financial institutions, and other entities that make substantial payments to you during the tax year.

A person's time orientation can shape life outcomes. Which of the following is most closely associated with lifetime wealth accumulation?

Future goal

Lifetime earnings and education are positively related. Select the ranking that represents the median lifetime earnings based on education achievement from lowest to highest:

High School Diploma, Bachelor's Degree, Doctoral Degree, Professional Degree.

Yolinda and Wes decide to go into business together as a partnership. As part of their business, they lease a car, with each paying half the monthly expenses. Unfortunately, the business does not make any money. After 2 years, Yolinda decides to leave and take a job with another employer. Wes, on the other hand, decides to make a go of the business. Given this information, which of the following is true?

If Yolinda stops making her share of the car expenses, Wes will be liable for Yolinda's share.

Loraine is thinking about her future retirement goals and needs. She has 25 years until retirement. She needs to save quite a bit of money to reach her retirement goal. Unfortunately, Loraine's risk tolerance is low. Given these facts, what the best recommendation for Loraine?

Invest more aggressively knowing that she has time on her side to withstand any temporary setbacks with these riskier investments.

is it possible to increase financial risk tolerance over time?

Knowledge leads to confidence, which leads to experience, understanding and an increase in risk tolerance.

Kaylee has been dreaming of a grand vacation for several years. Last year, she started to save for this once-in-a-lifetime event. So far, she has saved $2,000 toward a goal of $25,000. Her plan is to travel in 6 years. What is Kaylee's goal time horizon

Long-intermediate term

f you hold an asset for more than one year and then sell it for a profit, you will be taxed at a rate of which of the following? Short-term capital gains.

Long-term capital gains.

who is most likely to accumulate most wealth.

The person who is willing to take risk after adequate research.

Which of the following people is most likely to be considered financially knowledgeable?

Michelle, who gives regularly to charity, reads about investing, and is self-confident.

If you wanted to know how long it would take $1,500 in an account earning 5.50% interest to double in value, what TVM variable would you want to solve for?

N

Nicki is meeting with her financial planner. She is new to investing and does not have much experience in the markets. She recently took a risk-tolerance quiz and scored below average in terms of risk tolerance. Her financial planner is now recommending that she purchase shares in an aggressive mutual fund that invests in very risky small companies. The financial planner's argument is that Nicki needs to take risk to achieve decent returns. Do you agree with the financial planner

No, because Nicki's risk tolerance does not match the mutual fund's risk profile.

Sandeep wants to save some money each month for to purchase a wedding ring and pay for a honeymoon in two years. What TVM variable would Sandeep want to solve for?

PMT

Choose the correct formula that leads to determining your financial score:

Risk Tolerance + Financial Knowledge - Feelings-of-Control

Which of the following refers to a tax strategy of letting assets appreciate in value over a long period before realizing the gains?

Tax-deferred growth.

Which of the following statements is true about compound growth?

The longer you let the money grow the more it will produce.

Which of the following goals is the most clearly stated?

To fund a $3,500 vacation in San Diego in 9 months.

Haley owns a Honda Civic. She is creating her balance sheet and needs to input a value for the car. Which of the following is an indication of the car's fair market value?

Trade in value of the car.

Conti has a high sense of control. Which of the following statements is she most likely to strongly agree with?

What happens in future depends on me.

If you are claimed as a dependent on someone else's tax return, which of the following statements is correct:

You may lose certain tax benefits for yourself.

Generally, filing a joint tax return with your spouse results in ____ tax liability compared with filing separately.

a lower

Example(s) of human capital include which of the following? Formal education. Health. Skill development. All of these answer choices are correct.

all the above

What is used when comparing savings rate offers?

annual percentage rate

tax avoidance

both legal and expected of taxpayers and structuring transactions so that taxes are minimized.

A tool that helps you determine where you want to spend your income is known as a(n):

budget

Which is the most liquid asset?

cash in your wallet

Which of the following refers to a legal structure that is separate from the owners of the business?

corporation

Which of the following refers to an asset that decreases in value over time?

deprecating asset

Which of the following is most likely to reduce your social capital among those who may be likely to hire you for a job?

drinking at bar

Someone who feels that investing is too difficult to understand likely:

has lower financial literacy

one purpose of a budget is too?

help you see where you are spending money on a regular basis.

All of the following influence your human capital, except:

income

Return on your savings is called:

interest

All of the following are examples of earned income except:

interest received from a savings account.

Someone who takes risks with his/her money by buying assets or shares in a company in hopes of receiving unearned income in the form of dividends is called a(n):

investor

Which of the following shields the personal assets of the owner(s) from the liabilities of the business?

limited liability company

Jerry recently earned $200 on an investment. Unfortunately, the investment fell in value, and he lost $200. Afterward, Jerry felt miserable. He hated losing the money much more than he enjoyed seeing the investment grow. Jerry's experience is an example of:

loss aversion

Which behavioral economics bias can result in someone forgoing possible long-term growth of assets because he or she want his or her investments to be safe?

loss aversion.

TVM calculations should be used when the following three things are part of a financial goal.

money time interest

Someone who strongly agrees with (a) the thought of taking risk is exciting, (b) high returns are more important than safety, and (c) making money in stocks and bonds is based on knowledge is most likely:

more

Nigel believes that most "rich people" obtained their wealth either through hard work or by investing wisely. Assuming Nigel adopts this same perspective as a guide to his own spending and saving behavior, he is most likely to become:

more knowledgeable about the financial marketplace over time and increase his personal wealth.

Swarn is a risk-taker. His core life philosophy is that nothing bad can happen to him. When he thinks back over his life, he can't remember any serious negative events. When he looks ahead, he simply can't imagine a painful loss occurring to him. Swarn likely suffers from a(n):

optimism bias

Which of the following time orientations is most closely associated with a lack of goal orientation, a general feeling of hopelessness, and general pessimism?

past-negative

Asking someone to start saving next week, rather than some time later, helps the person:

pre-commit to decisions.

Because of the TVM concepts learned in this topic, you should _________ receiving $1,000 in 1 year if given the opportunity to receive $1,000 in 2 years from today.

prefer

The fact that nearly everyone would like to be wealthier rather than poorer refers to his or her risk

preference

Fair market value is the price you:

price you could sell an asset