FINA 369 Chapter 1 Book
Financial planning helps us: a. control inflation. b. have flexibility to handle job loss. c. control unemployment rates. d. obtain a social security number. e. decrease national debt.
b
Income tends to ____________ between the ages of 65 and 80. a. increase b. decrease c. stabilize d. fluctuate
b
One trend with a profound effect on people's standard of living is the ____________, which requires greater responsibility to manage money wisely. a. single-income family b. two-income family c. no-income family d. retirement-income family
b
People with low incomes tend to be: a. educated. b. very old. c. childless. d. married. e. very skillful.
b
Personal ____________ is a systematic process that considers important elements of an individual's monetary affairs in order to fulfill monetary goals. a. conflict resolving b. financial planning c. standard of living d. legal counselling
b
Salaries could vary across geographical areas because of: a. legal costs. b. living costs. c. social costs. d. psychological costs. e. technological costs.
b
Stocks, bonds, and mutual funds are _____. a. physical assets b. intangible assets c. fixed assets d. national assets e. real assets
b
The Government places constraints on the personal financial environment by the use of: a. leverage policy. b. taxation. c. competition. d. budgetary deficits. e. free-enterprise system.
b
The best way to resolve money disputes is to: a. never discuss money matters with family and ensure that only one person in the family makes financial decisions. b. communicate consistently about money matters with family and be willing to compromise. c. make financial decisions independently and ensure that individuals do not interfere in other family members' financial matters. d. adopt a third party's opinion, who is not a part of the family, to set financial goals. e. always handle the money disputes of the family according to the local state law.
b
The consumer is: a. a member of the business group. b. the central player in the financial planning environment. c. an important force in the government. d. an advocacy group that fights corruption in the government. e. relatively unimportant to the business or the government.
b
The purchase of ____________ is an example of the purchase of a financial asset. a. a home b. stocks c. a car d. jewelry
b
Which of the following is included in employee benefits packages? a. Estate plans b. Retirement plans c. Federal plans d. Personal plans e. Bankruptcy plans
b
Which of the following is true about setting long-term goals? a. The goals should be very ambitious. b. The goals should be realistic. c. The objective of the goals should be to squander surplus funds. d. The goals should be very conservative. e. The goals should be set only once.
b
T/F: You should always spend more than what you earn.
False
T/F: Your purchase, saving, investment, and retirement plans and decisions are influenced only by the present state of the economy.
False
T/F: The decisions you make in career planning are independent of the decisions you make in financial planning.
False
T/F: The federal government delegates its regulating economic activity function to businesses and consumers.
False
T/F: The need for financial planning declines as your income increases.
False
T/F: A good financial plan is completed when one is in his or her 30s and will typically last a lifetime.
False
T/F: Accumulating wealth for later years is called estate planning.
False
T/F: Career plans should be fixed once the long-term and short-term career goals are set.
False
T/F: Commission-based financial planners charge fees for the financial products they sell.
False
T/F: Estate planning does not include taking advantage of and managing employer-sponsored benefits.
False
T/F: Fee-only financial planners charge commission for the products they sell.
False
T/F: It is not good to discuss your financial goals and attitudes toward money with your partner.
False
T/F: It is very easy to change your partner's financial style, so there is no need for financial planning to resolve conflicts regarding money matters.
False
T/F: Living costs are constant throughout the country.
False
T/F: Mike's annual income is $35,000, and he spends $30,800 for current needs. Mike's average propensity to consume is 80%.
False
T/F: Most people tend to be more liberal about their expenditures during a recession or crisis.
False
T/F: Personal financial plans help individuals have the same standard of living across the country.
False
T/F: Recessions and financial crises will always result in job loss.
False
T/F: Saving $3,000 for a large, flat-screen TV within the next 6 years is an example of a short-term goal.
False
T/F: Tangible assets are earning assets that are held for the returns they promise.
False
T/F: The average propensity to consume is commonly viewed as a key determinant of standard of living.
False
T/F: Financial planning can improve your standard of living.
True
T/F: Financial planning takes place in a dynamic economic environment created by the actions of the government, business, and consumers.
True
T/F: For employees of large firms, managing employee benefits is an important part of financial planning.
True
T/F: Geographic factors affect your earning power.
True
T/F: Marital status affects the income level of individuals.
True
T/F: Setting long-term and short-term career goals helps in career planning.
True
T/F: Short-term planning should include creating and maintaining an emergency fund with six to nine months' worth of income.
True
T/F: Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or a family.
True
T/F: Tax plans are closely tied to investment plans.
True
T/F: The longer you wait to begin retirement planning, the less you are likely to have in your retirement fund.
True
T/F: The most effective way to achieve financial objectives is through personal financial planning.
True
T/F: Two persons with significantly different income can have equal average propensities to consume because of differences in their standards of living.
True
Estate planning involves: a. considering how your wealth can be most effectively passed on to your heirs. b. payment of all back taxes to ensure minimum tax liability. c. the dissolution of all privately held corporations by filing bankruptcy under Chapter 13. d. the valuation and auctioning of your valuables by hiring a professional tax planner. e. planning for retirement and obtaining medical insurance.
a
Financial planning for young people primarily concerns: a. career. b. insurance. c. investment. d. taxes. e. retirement.
a
Financial plans include setting goal dates, which are: a. dates in the future when the goals are expected to be achieved. b. dates in the future when the goals will be compared with other goals that have already been achieved. c. dates in the past when the goals were revised and redefined. d. dates in the past when the goals were set. e. dates in the future when the goals will be discussed with family members.
a
Inflation refers to: a. increasing prices. b. declining population. c. increasing tax evasion. d. increasing stock index. e. decreasing birth rate.
a
Most families find it difficult to discuss ____________. a. money matters b. economic matters c. social matters d. political matters
a
Professional financial planners: a. provide services on fee or commission basis. b. provide services to wealthy investors only. c. set the financial goals of retired investors. d. make financial decisions for investors. e. are most sought after during retirement years.
a
Regardless of income or wealth, setting aside some portion of current income regularly for future use increases the amount of ____________. a. income saved b. tax-exempt income c. deferred tax d. employer-sponsored benefits
a
The _____ environment of your country affects the interest rates you pay on your mortgage and credit cards as well as those you earn on savings accounts and bonds. a. economic b. political c. technological d. social e. legal
a
The financial crisis of 2008 and 2009 is best characterized as a _____. a. recession b. depression c. hyperdeflation d. business peak e. bubble
a
The financial planning process helps in: a. increasing assets. b. increasing debts. c. reducing utility. d. reducing emergency funds. e. increasing financial risk.
a
The purchase of a car is an example of ____________. a. current consumption b. social conservation c. deferred tax d. economic contraction
a
The stage in which the economy hits a peak is called: a. expansion. b. contraction. c. stagnation. d. recession. e. depression.
a
Which of the following financial goals is most useful for developing a financial plan? a. Make a $12,000 down payment on an automobile in 4 years. b. Retire with a comfortable lifestyle in 25 years. c. Buy a $125,000 house. d. Purchase a $40,000 boat. e. Join the county club on retirement in 20 years.
a
Which of the following statements is true about businesses? a. Businesses provide goods and services and receive payment in money. b. Businesses frame rules and regulations to maintain the law and order in a country. c. Businesses determine the kinds of goods and services that a government will use. d. Businesses do not interact with other players in the economy. e. Businesses are seldom affected by economic cycles.
a
Which of the following statements is true about the earning power of an individual? a. Income varies across different geographic locations due to varying costs of living. b. Heads of households who have less formal education earn more. c. Career planning does not help in improving earning potential. d. People who are very old have very high income. e. Marital status does not have any impact on an individual's personal income.
a
_____ is equal to the net total value of all the items that an individual owns. a. Wealth b. Propensity to consume c. Consumer price index d. Purchasing power e. Extended credit limit
a
____________ help in making decisions regarding retirement. a. Personal financial plans b. Federal tax policies c. Government foreign policies d. The employer's business expansion plans
a
Which of the following practices helps an individual survive in a financial crisis? a. Spending more than his or her earnings to maintain a good lifestyle b. Investing regularly to make money work toward achieving financial goals c. Giving emergency funds the least priority while saving for the future d. Developing financial plans only after reaching the highest tax brackets e. Planning tax without considering tax shelters
b
Which of the following statements is true about Andy if the inflation rate is increasing every year by 1 percent and there is no growth in her salary? a. Andy's gross domestic product will increase. b. Andy's purchasing power will decrease. c. Andy's employment opportunities will increase. d. The annual growth in Andy's salary will be equal to the average inflation rate. e. Andy's cost of borrowing will be less than 5 percent.
b
Which of the following statements is true about money and relationships? a. It is highly likely to change a partner's financial style. b. One of the most important aspects of a marriage is financial compatibility. c. Money does not cause emotional issues in any relationship. d. The best way to resolve a money dispute is to avoid such a discussion. e. Financial planning does not help in resolving conflicts related to money.
b
Which of the following will legitimately reduce an investor's tax liability? a. Tax evasion b. Tax shelter c. Tax penalty d. Tax accounting e. Tax portfolio
b
____________ would be considered to be real property. a. Stocks b. Land c. Cash d. Bonds
b
A carefully developed financial plan should provide for saving a portion of ____________ for deferred, future spending. a. retirement funds b. tax penalty c. current income d. future income
c
A key determinant of an individual's quality of life is his or her: a. tax bill. b. financial goal. c. wealth. d. motivation. e. growth potential.
c
A strong economy leads to: a. a low gross domestic product. b. high tax evasion opportunities. c. high employment opportunities. d. low tax penalty rates. e. a low value of retirement account.
c
An economy experiences _____ after a peak. a. a convolution b. an expansion c. a contraction d. recovery e. prosperity
c
At which of the following stages does an individual tend to have the highest income? a. Early childhood b. Career development c. Pre-retirement d. High school and college e. Pre-family independence
c
Knowing what you need to accomplish _____, and how you intend to do it, gives you an edge over someone who merely reacts to monetary events as they unfold. a. socially b. physically c. financially d. legally e. politically
c
Martha is 60 and has a very high net worth. Her most pressing financial concern is probably: a. asset acquisition planning. b. liability planning. c. estate planning. d. insurance planning. e. savings planning.
c
Tax planning is most commonly done to: a. determine the tax penalty. b. evade taxes. c. minimize taxes. d. pay extra taxes. e. learn the tax code.
c
The amount of goods and services each dollar buys at a given point in time is called: a. inflation. b. the consumer price index. c. the purchasing power. d. the gross domestic product. e. the opportunity cost.
c
The best way to achieve your financial objectives is to ____________ a. have a luxurious standard of living. b. spend your money at once to reach your objectives swiftly. c. develop a sound financial plan. d. create a good tax evasion strategy.
c
When setting financial goals, one should typically start by setting: a. short-term goals. b. intermediate goals. c. long-term goals. d. goals that are not time-bound. e. goals that are unrealistic.
c
_____ is an important part of the conflict resolution process when there are disputes relating to money matters in families. a. Life cycle analysis b. Personality development c. Financial planning d. Personal counseling e. Stress management
c
_____ is something we owe, which is measured by the amount of debt we incur. a. An asset b. An estate c. A liability d. Insurance e. A goal
c
_____ provide the roadmap for achieving monetary goals. a. Political plans b. Social plans c. Financial plans d. Technological plans e. Legal plans
c
An individual's quality of life is closely tied to his or her: a. political orientation. b. charitable contributions. c. pollution control efforts. d. standard of living. e. educational qualifications.
d
Employee benefits may include: a. asset purchase. b. estate management. c. investment advice. d. pension payments. e. savings planning.
d
In addition to discussing your financial goals with your partner, you must allocate responsibility for _____ tasks and decisions. a. skill management b. stress management c. household management d. money management e. business cycle management
d
Personal financial planning is important because it: a. controls inflation. b. limits consumption. c. reduces social disparity. d. results in an improved standard of living. e. reduces economic differences among individuals.
d
Sarah starts investing in an individual retirement account (IRA) at the age of 30 earning 10 percent for 35 years. At age 65, she will get more returns as compared to those returns if she ____________. a. starts investing at the age of 25 b. invests at 12% c. invests for 45 years d. invests up to the age of 60
d
The average propensity to consume refers to the: a. dollars of income spent on luxury goods. b. dollars of income saved by an individual. c. expenditure on the basic necessities of life. d. percentage of income spent for current consumption. e. fact that people with higher propensity to consume earn lower income.
d
The last step in the financial planning process is to: a. develop financial plans and strategies to achieve goals. b. use financial statements to evaluate results of plans and budgets, taking corrective action as required. c. implement financial plans and strategies. d. redefine goals and revise plans and strategies as personal circumstances change. e. periodically develop and implement budgets to monitor and control progress toward goals.
d
Understanding the economic environment will allow you to make better _____ decisions. a. social b. political c. technological d. financial e. legal
d
Which of the following is one of the most emotional issues in any relationship, including that with a partner, parents, or children? a. Utility b. Economic cycles c. Fiscal policy d. Money e. Gross domestic product
d
Which of the following is true about the effects of an economic recession? a. An increase in the standard of living b. A decrease in unemployment c. An increase in the expenditure on luxury goods d. A decrease in the value of retirement accounts e. An increase in the value of insurance purchased
d
Which of the following practices will help in dealing with unexpected financial shocks? a. Purchasing low-utility products b. Accumulating debt c. Acquiring assets with low financial value d. Saving money regularly for emergency funds e. Planning for retirement after retiring
d
Ben invests $10,000 at a rate of interest of 5 percent for 40 years. Which of the following is true about the return on the investment? a. Ben will receive more money at the end of 30 years compared to the money received at the end of 40 years. b. Ben will receive more money at a 3 percent rate of interest instead of the existing rate. c. Ben will receive an interest of $5,000 at the end of ten years. d. Ben will receive no interest on his investment at the end of the investment period. e. Ben will receive a significant amount at the end of the investment period, due to the feature of compounding.
e
Career planning: a. does not require any goal setting. b. and personal financial planning are unrelated activities. c. does not influence an individual's lifetime earnings. d. impacts the inflation rate in an economy. e. helps in improving professional satisfaction.
e
Ideally, retirement planning should begin: a. during the year before retirement. b. when the last child has left home. c. as soon as the mortgage is paid off. d. when one gets married. e. as soon as one starts earning.
e
Managing health and disability insurance is an important part of: a. asset acquisition planning. b. tax planning. c. retirement planning. d. estate planning. e. employee benefit planning.
e
The three key groups in the economic environment are: a. government, regulation, and business. b. government, consultants, and business. c. consumers, economists, and business. d. consumers, business, and managers. e. government, consumers, and business.
e
Which of the following is a reason for a decrease in the average propensity to consume with an increase in income? a. The amount of savings decreases, and the consumption of necessities increases. b. The expenditure on luxury goods increases, and the amount of savings decreases. c. The expenditure on luxury goods represents only a small portion of income. d. The amount of savings represents only a small portion of income. e. The cost of necessities represents only a small portion of income.
e
Which of the following is true about investments? a. As income increases, the need for investment decreases. b. Keeping money idle is a form of investment. c. Higher returns on investment will lead to the accumulation of lesser wealth. d. Investment is measured by the amount of debt incurred. e. The length of time for which money is invested is important.
e