Personal Finance Ch. 1
Which of the following could save a smaller proportion of their earnings to achieve the same level of wealth: A) Social worker B) School teacher C) Doctor D) All would save the same percentage of earnings to reach the same level of wealth.
C
If you set realistic goals rather than unrealistic ones, your plan becomes a more useful one
True
Which of the following would not be a factor in evaluating your current financial position? A) income B) expenses C) Possible lottery winnings D) Assets
C
Amanda has cash of $100, a car worth $5,000, and books worth $200. Her liabilities include a car loan of $2,000, and a credit card balance of $100. What is the total of her assets, liabilities, and her net worth.
Assets= $5,300 Liabilities= $2,100 Net Worth= $3,200
Blank is the process of forecasting future expenses and savings
Budget planning
Big spenders focus their budgeting decisions on: A) reducing expenses B) increasing income C) spending most of their income D) saving most of their income.
C
A good understanding of the financial planning process will allow you to make informed decisions without relying on the advice of financial advisors.
False
A thorough understanding of this personal finance book qualifies you to become a financial advisor.
False
The first step in budgeting is to evaluate your current financial position by looking at just your income and expenses.
False
The major source of cash outflow for most people is the income they receive from employers.
False
Various government agencies have conducted surveys that show most people have a good understanding of personal finance.
False
Which of the following is an example of an opportunity cost?
Taking a class instead of working at your part time job.
A part of your financial plan should involve a plan for protecting your assets and income through insurance coverage.
True
An example of an opportunity cost is the wages that you could have earned but didnt because you were in class.
True
Your budget is influenced by your income, which in turn is influenced by your education and career decisions
True
During his Blank, your Uncle Harvey decides to cut you out of his will.
estate planning
In the United States many people save:
less than 3% of income earned
Your ability to access funds to cover any short term cash deficiencies is your:
liquidity
Opportunity cost refers to:
what you give up or forego as a result of making a decision.
Cash flows are affected by financial planning decisions. Which of the following is not correct: A) insurance payments are a cash outflow B) investing in stock is a cash outflow C) Buying on time results in a cash inflow D) income is a cash inflow
C
Goals with a time frame between one and five years are classified as: A) short term B) long term C) intermediate D) unrealistic
C
If your income exceeds the amount you spend, you should blank your investments or blank loans: A) reduce, repay existing B) reduce, obtain more C) increase, repay existing D) increase, obtain more
C
Josh has decided to take a course at the local CC that could help him get a promotion at work. The course begins at 5pm each day, but because of the drive time to the school, he will need to leave work at 3pm on class days. Josh currently makes $18.50 per hour. His employer contributes 10% of Josh's gross earnings to a 401(k). If the class meets 16 times, what is josh's total opportunity cost for the class? A) 592.00 B)800.00 C)$651.20 D) None
C
Blank is the process of forecasting future expenses and savings: A) budgeting B) Planning C) Predicting D) Fortune-Telling
A
Estate planning results in: A) protecting your wealth against unnecessary taxes B) sheltering your wealth against all taxes C) ensuring that your wealth is distributed in the manner that the court determines D) eliminating all controversy in your family
A
From a financial standpoint when should a person start retirement planning and saving: A) When he or she first starts receiving a salary B) at 45-50 C) 50-55 D) 55-60
A
The act of determining how wealth will be distributed before or upon death is: A) estate planning B) Retirement planning C) not needed for most people D) liquidity planning
A
A complete financial plan consists of budgeting, taxes, financing, and investing.
False
An understanding of personal finance is not necessary to judge the quality of advice that a financial advisor may give.
False
Determining how much money you should set aside for retirement and how those funds should be invested should not be a concern for people until they near their retirement age.
False
Effective estate planning will ensure that your wealth is distributed according to your wishes, but will do nothing to reduce the potential taxes your estate is subject to.
False
Goals should be set as high as possible regardless of reality because they may become obtainable.
False
Goals with a time frame of five years or more into the future are called intermediate goals
False
Credit should be used only when necessary, since it usually involves borrowed funds that you will need to pay back with interest.
True
In addition to the text, websites and financial magazines are good sources for additional help in financial planning.
True
One of the considerations in determining your investment choices is evaluating the level of risk you are willing to take.
True
The simple objective of financial planning is to make the best use of your resources to achieve your financial goals.
True
The value of what you own minus the value of what you owe is called your net worth.
True
A personal financial plan specifies financial goals and describes:
spending, financing, and investment plans.
Which of the following would be considered a short term goal: A) Buying a new house in three years B) buying new clothes this month C) retiring in ten years D) paying for your two year old's college
B
Which would be a long term goal: A) paying off a loan in three years B) purchasing a car in three years C) Saving enough money to retire in 20 years D) Paying for two years of college
B
List the six components of a financial plan:
Budgeting and tax planning Managing liquidity Financing your large purchases Financing your assets and income Investing your money Planning your retirement and estate
Blank allows access to funds to cover any short-term cash deficiencies: A) Investment B) Money C) Liquidity D) Risk
C
Blank management involves decisions regarding how much credit you need to support spending and which sources of credit to use. A) Investment B) Money C) Credit D)Liquidity
C
Budgeting helps set goals by estimating blank on a monthly basis to determine how much to save and spend: A) assets and income B) liabilities and expenses C) income and expenses D) net worth and income
C
The best measure of a person's or family's net wealth is: A) the highest level of education received. B) the amount of annual income C) the value of what you own minus the value of what you owe D) their tax bracket
C
When estimating expenses for a budget: A) last month's and last years expenses are not a good starting point B) Many of the same expenses don't occur each month. C) large unusual expenses such as a car or hospital bills should be included D) Estimating your future assets is a good starting point.
C
Which of the following goals would be easiest to measure: A) reduce debt payments B) save funds for an annual vacation C) save $100 a month to create a $4000 emergency fund D) invest for a comfortable retirement
C
Which of the following is a credit management decision: A) purchasing a used car with cash B) Investing your savings in the stock market C) Obtaining a student loan to attend college D) Putting money into your retirement account
C
Which of the following is not a decision that you would probably encounter in managing your budget: A) What expenses should you anticipate B) How much money you should attempt to save each month C) How will you allocate your estate among your heirs D) How long will you take to pay off a specific loan
C
Which of the following items is not a liability: A) the balance due on your credit card B) your college loans C) the wages you give up to take a class D) An IOU to your roomate
C
Your decision about one component of your financial plan can affect all other components. Which statement is true: A) The amount of insurance you choose to carry has no effect on your investing decisions B) There will never be any trade offs to consider when making decisions about your financial plan C) If you make poor investment decisions, you may have to work longer than planned D) You should contribute all of your extra money to your retirement account even if it means you don't have money available for products and services today.
C
Your net worth will not be increased by which of the following actions: A) increasing your savings from 10-15% of your earnings B) a $100 birthday present from your grandmother C) Buying a new stereo system and putting the entire amount on your credit card D) receiving an inheritance
C
A budget doesn't: A) require thinking and planning B) require an evaluation of your current financial position C) help you account for all your income and expenses D) Require the preparation of a will
D
A complete financial plan contains all of the following categories except: A) managing liquidity B) budgeting and tax planning C) investing money D) spiritual training
D
If prepared properly, financial plans are set for life and should not need to be adjusted
False
Liquidity cannot be enhanced using sound money and credit management
False
Which of these statements is true with regards to the 08-09 financial crisis: A) more than half of the people working in the US have a plan for saving money. B) the value of many homes were cut in half or more. C) Even with an understanding of personal finance, you most likely will not be able to make decisions that will enhance your financial situation. D) Economic conditions are now as strong as they were in the period before the crisis.
B
To increase your savings: A) income must be increased B) expenses must be increased C) income must be decreased D) net worth must be decreased
A
Which of the following doesn't protect your assets and/or income: A)Self insurance B) disability insurance C) Automobile insurance D) Life and health insurance
A
Which of the following is an example of money management: A) Putting your money in a passbook account at your bank B) Shopping around for the credit card with the best interest rate C) Deciding to delay buying a new car until you can pay cash D) paying off a loan to reduce the interest charges.
A
Which of the following is not an asset? A) your house which you rent B)Your car which you have financed C)your coin collection given to you by your grandfather D) your textbooks
A
Which of the would not be considered a very good investment: A) a new TV B) an art collection C) a savings account D) a mutual fund of stocks and bonds
A
A worker making $20 per hour decides to take unpaid leave from work to attend a graduation ceremony. Assuming the worker works an 8 hour day, has a total tax rate of 70% and receives a 5% contribution from his employer to his 401(k), what is the workers total opportunity cost? A) 8.00 B)120.00 C) 112.00 D) 160.00
B
Blank management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short-term investment instruments. A) Investment B) Money C) Credit D) Liquidity
B
By establishing high and unrealistic financial goals, you will probably: A) improve the likelihood of achieving at least some success. B) become discouraged and lose interest in planning. C) increase the viability of your plan D) impress your spouse of significant other
B
If you are interested in achieving a long term savings goal, then: A) you aren't concerned with paying off your current debt B) You believe that saving a small amount is better than saving nothing at all C) You buy a new car because your best friend bought one D) you believe that retail therapy is the answer to your occasional depression
B
Which of the following is not a type of decision to manage your liquidity: A) deciding how much money to keep in savings B) Choosing between credit cards C) determining how much money to save versus how much to spend D) Building and maintaining a monthly/yearly budget with allocations to expenses and investments.
B
Retirement planning should take place: A) when you retire B) shortly after you retire C) well before you retire D) at any time
C
If you don't have access to money to cover cash needs, yo may have insufficient liquidity.
False
Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use.
False
Most Americans will never be able to understand and develop a financial plan.
False
Most investments are subject to blank, which is the uncertainty surrounding their potential return.
Risk
A plan for Blank is needed to determine how much you could afford to borrow, the length of the loan, and to select a loan that charges competitive interest rates: A) Buying B) financing C) spending D) saving
B
All of the following are true with regards to the demand for financial advisors except: A) many people lack an understanding of personal finance. B) Financial matters have become so difficult that making decisions alone is impossible. C) many people are just not interested in making their own financial decisions. D) the law requires that you use them before making investments.
D
Big Savers focus their budgeting decisions on: A) reducing expenses B)increasing income C) spending most of their income D) saving most of their income
D
If you have a cash deficiency this month, which of the following is the least desireable souce from which you may obtain the necessary funds: A) withdrawing from a savings account B) borrowing from a line of credit C) working additional hours to earn more money D) borrowing money from your 401(k) retirement account
D
Insurance planning is not designed to protect your wealth in which of the following ways: A) Protecting the assets that you own B) Limiting your exposure to potential liabilities C) Protecting your income D) Downturns in the stock market
D
Potential investments include all of the following instruments except: A) stocks and bonds B) mutual funds C) real estate D) lottery tickets
D
The income in your budget is not affected by: A) your education B) career decisions C) tax laws D) the standard of living you experienced as a child
D
Your financial position is highly influenced by all of the following except: A) the amount of education you pursue B) the current pay level you receive C) the current economy D) the bonus check your best friend just received
D
