Personal Finance CH 1
An example of a personal opportunity cost would be
Time comparing several brands of personal computers.
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.
17,460
If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period?
22,054
If a $10,000 investment earns interest of $500 in one year, what is its rate of return?
5 percent
Which of the following intermediate goals is stated most clearly using the SMART approach?
Purchase a house within the next 5 years with a mortgage no greater than $150,000
Making financial decisions related to income involves all of the following except
Taking
The consumer price index measures:
The average change in prices of a fixed basket of goods and services of urban consumers
If a $10,000 investment earns a 4 % annual return, what should its value be after one year?
10,400
If Melinda Miller 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?
112.50
If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?
15,010
If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months?
15.00
The stages in the family situation and financial needs of an adult is called the
Adult life cycle
Who is less likely to be harmed by inflation?
Borrowers
The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning.
Borrowing
Future value computations are often referred to as
Compounding.
The first step of the financial planning process is to
Determine your current financial situation.
Present value computations are also referred to as
Discounting
Every decision involves uncertainty, which is referred to as
Evaluating risk.
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
Opportunity cost refers to
What you give up by making a choice.
The loss of a job or encountering an illness results in ________ risk.
income
Changes in the cost of money is referred to as ________ risk.
interest-rate
The rising or falling of prices that causes changes in buying power is referred to as ________ risk.
inflation
The difficulty of converting savings and investments to cash is referred to as ________ risk.
liquidity
The tangible and intangible factors that create a less than desirable situation is referred to as ________ risk.
personal
If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now?
889
If inflation is expected to be 8 percent, how long will it take for prices to double?
9 years
The saving component of financial planning focuses on long-term security and includes:
A regular savings plan for emergencies
________ goals relate to infrequently purchased, expensive tangible items.
Durable-product
The 'borrowing' component in a financial plan relates to
Maintaining control over credit-buying habits
Using the services of financial institutions or financial specialists (such as insurance agents, certified financial planners or investment advisers) to seek relevant information is done in which step in the financial planning process?
Evaluate your alternatives.
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)
Financial plan.
Which of the following is correct?
Food and clothing are consumable-product goals.
Which of the following is an example of a financial opportunity cost?
Forgoing wages to attend school
An investor should expect to receive a risk premium for
Higher uncertainty about getting his/her money back
To develop financial goals, one should
Identify specific, realistic goals that are measurable along with a time frame and an action plan
An advantage of effective personal financial planning is:
Increased control of financial affairs
Which of the following best describes the concept of the time value of money?
Increases in an amount of money as a result of interest earned.
The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) ________ goal.
Long-term
Increased consumer saving and investing is likely to be accompanied by
Lower interest rates
If I can invest a dollar today and earn interest on it, then it should be worth ________ in the future.
More
Attempts to increase income through employment are part of the ________ component of financial planning.
Obtaining
Robert Brown 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?
Personal opportunity cost relating to time
Which of the following would increase the interest rate for a loan?
Poor credit rating
Many Americans have money problems because of
Poor planning and weak money management habits
The step in the personal financial planning process that follows immediately after the step: "Create and implement your financial action plan" is
Review and revise the financial plan
Changes in personal, social, and economic factors may require you to
Review and revise your financial plan more frequently.
