Personal Finance Chapters (1,3,4,13)

If Mary has cash inflow for the year of $120,000 with cash outflows of $135,000, her cash flow statement would show a Blank______. ch.2

$15,000 deficit

If Mary owes the IRS $5,000 for her income taxes and is in the 15% marginal tax bracket, what would be her average tax rate if she had taxable income of $41,667? Ch. 4

$5,000/$41,667=12%.

If you are in the 28% tax bracket and owe $20,000 on $100,000 of taxable income, your average tax rate and marginal tax rate would be, respectively,: Ch. 4

20% for average and 28% for marginal.

The type of market risk that affects a specific company or industry is _______risk.

unsystematic

One type of risk that investors in stock take is a decrease in Blank______.

value

The risk associated with bad news that a company may bring to the public is the risk in decreased

value

John owed $10,000 in taxes on taxable income of $40,000. If John earns an additional $1,000, he will pay an additional $280. Therefore: Ch. 4

his average tax rate is 25% approximately.

A balance sheet is a personal financial statement that shows: Ch. 4

what you own and owe as of a certain date.

According to the text, why is goal setting an important aspect for personal financial growth? ch.1

goal setting assits with the finacial decision-making process

The rule of thumb when saving for an emergency fund is to set aside: ch.2

three to six months of living expenses.

What measures the increase in an amount of money as a result of interest earned? ch.1

time value of money

When setting financial goals, you should ensure they are: ch.1

time-based, action-oriented, specific, measurable

True or false: A financial plan is a formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities. ch.1

true

True or false: Frank can invest some of the money he has been saving in the stock market now; however, that would probably require some trade-offs on his part. ch.1

true

Three methods that help develop successful financial habits are: ch.1

understanding tax and investment information, providing adequate insurance coverage, focusing on a defined spending plan

Among other factors, a person's priorities, age, and ________ affect his or her investment goals.

values

Which of the following are types of investment income? Ch. 4

rent, dividends, interest,

The rate of______ , Correct Unavailable can vary in percentage, yet every percent greater makes a significant impact on future value.

return

Two methods that will not help develop long-term successful financial habits are: ch.1

saving as much money as possible for only one year, regularly using your emergency fund for routine expenses

Place the steps of budgeting in the correct order starting with Step 1 at the top. This is found under the budgeting process. Position 1 of 6 Evaluate spending and saving patterns. incorrect toggle button unavailable Evaluate spending and saving patterns. ch.2

set financial goals, estimate expected income, budget for an emergeny fund and savings, budget fixed and variable expenses, record actual income and spending, evaluate spending and saving patterns

Which of the following are some of the typical asset classes utilized in asset allocation?

small, medium, and large corporation stocks foreign stocks bonds

Which of the following are common reasons to save money?ch.2

to pay for unexpected expenses, to pay for a vacation, to pay for the replacement of an appliance

If your debt-payments ratio is 0.25, it means that about 25% of your net pay goes toward debt payments. ch.2

True

The first step in the financial planning process is: ch.1

determining your financial situation regarding income, savings, living expenses, and debts.

An amount of your money that you obtain quickly in case of an immediate need is a(n) Blank______.

emergency fund

The fourth step of the financial planning process is: ch.1

evaluating each alternative method and taking into account the individual's personal finances, values, and the state of the economy

Why should you evaluate your personal alternatives? ch.1

evaluation of personal altenative cources of action assits in the decision-making process to choose the best alternative course of action

True or false: Everyone has the same personal financial goals. ch.1

false

True or false: When creating a financial plan, it is a simple, static process that is easy to implement and requires little maintenance moving forward. ch.1

false

State and local income taxes are deductible for: Ch. 4

federal tax purposes.

Expenses that do not vary from month to month are referred to as Blank______ expenses. ch.2

fixed

The third step in the financial planning process is: ch.1

identifying alternative courses of action.

Cash flow statements show the inflows (Blank______) and outflows (payments). ch.2

income

The two main types of federal taxes on wages and salary are Blank______ tax and Social Security tax. Ch. 4

income

Cash flow is the Blank______ of cash during a given period of time. ch.2

inflow and outflow

When determining goal-setting guidelines, what three things should you take into account? ch.1

investing activities, spending, saving

Which of the following is an example of an opportunity cost? ch.2

lower future investment earnings as a result of purchases

Fluctuation of prices due to the behaviors of investors in the marketplace is known as Blank______.

market risk

One way to reduce your tax liability is to: Ch. 4

maximize contributions to tax-deferred retirement programs.

A high current ratio indicates Blank______ cash available to pay bills. ch.2

more

Housing records would include Blank______. ch.2

property tax records, leases, home repair and improvement receipts

Amy is creating and implementing her new financial action plan. As a result, she asks for more hours at work and she begins to save more money. Why is she doing this? ch.1

Amy has identified ways she can achieve her financial goals and has implemented her plan.

Identify people who are following the guidelines of financial experts regarding savings ratio? ch.2

Bill's savings ratio is 5%., Jenny's savings ratio is 7%., Mandy's savings ratio is 10%.

Which of the following is a tax avoidance strategy? Ch. 4

Delay the receipt of income because you want to delay the payment of taxes until next year., Accelerate deductions to save taxes this year.

The __________ environment includes various institutions, including businesses, labor, and government, that work together to satisfy needs and wants. ch.1

Economic(s)

Take-home pay is the same as discretionary income and disposable income. ch.2

False

Which of the following are tax-postponing or tax-avoiding investment options?

IRA, Roth IRA, 401k

Adjustments to income include contributions to Blank______ or Blank______. Ch. 4

IRA; Keogh retirement plans

You invest $10,000 today in hopes of purchasing a computer system and gain 3.5% on your investment. At the same time, inflation rises 4% over the same time period. It will cost you an additional Blank______ to purchase the same goods

If inflation is 4% on computers, the computer system will cost you $10,400 in one year. You've gained $350 on your investments ($10,000 × 0.035), so your account only has $10,350. You will need to pay the additional $50.

What are examples of well-written financial goals? ch.1

Investing $250 per month for retirement in 40 years, Developing a savings plan of $100 per week to make a down payment on a car in a year

If foreign companies decide not to invest their dollars in the United States, the domestic money supply is ______ ch.1

Reduced or decreased

Which of the following statements are true with regard to taxes on wages?Ch. 4

Social Security is a tax on wages to fund old-age, survivor, and disability income benefits by the federal government., Income taxes are imposed by federal, some state, and some local governments to fund government operations.

Which of the following statements is true? Ch. 4

Tax-exempt income is not subject to tax, while tax-deferred income will be taxed at a later date.

How does a rapidly increasing unemployment rate influence a person with a job? ch.1

The decisions that the person makes will usually be lower risk and will focus on ways to preserve savings and maintain financial security.

When planning your financial goals, what role does the economy play? ch.1

The economy can play a direct role in your planning process.

The steps to prepare a budget include setting financial goals, estimating expected income, budgeting for emergency funds and expenses, recording actual expenses, calculating variances, and evaluating any needed revisions.ch.2

True

True or false: Interest rate risk is the result of changes in the interest rates in the economy.

True

When looking at investment, what is the first question you should ask yourself?

What is important to you and what do you value?

Useful investment goals are ______ , specific and _____.

Written, Measurable

The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is Blank______. Ch. 4

a marginal tax rate

Personal opportunity costs include using your time, in addition to or in place of money, to. ch.1

achieve your goals, meet your nees, satisfy your personal values

You have developed a savings plan and will be setting aside money for the next one year to make an investment. You plan to use the return from this investment to make down payment to purchase a home after three years. What are key time frames for this goal? Look at the timing of goals in the chapter. ch.1

achieving short-term and intermediate goals

The different stages of the financial and family needs of an adult is called the: ch.1

adult life cycle

Investment interest expense is deductible up to Blank______. Ch. 4

an amount equal to investment income

Saving for four years for a down payment on a house affects how soon you are able to purchase a home. This is an example of: ch.1

an intermediate goal that affects a long-term goal.

Certificates of deposit, real estate, and collectible antiques Blank______.

are not considered liquid

The process of spreading your assets among several different types of investments to lessen risk is called Blank______.

asset allocation

For investment income, which of the following would be good choices?

corporate bonds, municipal bonds, preferred stocks

If interest rates for new comparable bonds increase, the value of a bond will

decrease

So many Americans have money problems because: ch.1

of poor planning, of weak money management habits

Paul can invest his money in the stock market now instead of buying a new car; however, that would require a trade-off or: ch.1

opportunity costs

Discretionary income is what you have left after you have paid for housing, food, and Blank______. ch.2

other necessities

Equity capital is money that a business obtains from its

owners, shareholder, investors or stockholders

A growth company generally:

pay little or no dividend.

Which of the following are adjustments to gross income? Ch. 4

penalties for early withdrawal of savings, Keogh Plans, IRA contributions

Personal financial planning is the process of managing your money to achieve: ch.1

personal finacial goals

Selecting your time rather than your money to meet your needs, achieve your goals, and satisfy your personal values are examples of: ch.1

personal opportunity costs

Investment income in the form of dividends, interest, and rent from investments is also called (found in discussion of types of income) Blank______. Ch. 4

portfolio income

Which of the following are the basic major money management activities? ch.2

storing and maintaining personal financial records, preparing personal financial statements, creating and implementing a plan for spending and saving

All of the following will increase net worth, except: ch.2

taking $1,000 cash from your liquid assets and paying down $1,000 of debt.

When calculating total tax due, Blank______ are subtracted. Ch. 4

tax credits

From a tax standpoint, which of the following is most beneficial? Ch. 4

tax-exempt investments

What type of cost do you indirectly incur if you decide to go to school and not work? ch.1

the opportunity cost of not earning current income

What are capital gains? Ch. 4

the positive difference between the purchase price of a stock and its sale price

The definition of personal financial planning is: ch.1

the process of managing your money to achieve personal economic satisfaction.

What is the definition of the adult life cycle? ch.1

the stages in the family and financial needs of an adult

What is the definition of economics as described in this text under economic factors? ch.1

the study of how wealth is created and distributed

If you are a young married couple with no children, you will most likely choose investments Blank______.

with higher risks

A balance sheet is a listing of Blank______ as of a certain date. ch.2

your assets, liabilities, and net worth

Your life situation, personal values, and economic factors influence what? ch.1

your financial plan

True or false: A tax-exempt investment generates income to be taxed in later years, while a tax-deferred investment produces tax-free income. Ch. 4

False

True or false: Child and dependent care expense credit covers qualifying expenses to pay for someone else to care for your child under age 18 or dependent (e.g., disabled older child, spouse, or parent) who could not care for themselves. Ch. 4

False under age 13

Jason is a portfolio manager at a private investment company. He finds three very lucrative investments. They are oil contracts, construction contracts, and an Initial Public Offering of a company's stock. What is the opportunity cost if Jason invests all of the money with the construction contracts? ch.1

The opportunity cost in this situation are the other possible investments.

Financial goals should be realistic, measurable, have a time frame, and imply the type of action to be taken. ch.2

True

The fourth step of the financial planning process is evaluating each alternative course of action, taking into account the individual's life situation, personal values, and current economic conditions. Ch.1

True

Which of the following types of interest expense is not deductible? Ch. 4

automobile loan interest

Bill is concerned about his year-end tax payments. What are some options that are available to him to lessen his concerns? ch.1

bill can increase his tax withheld from each paycheck, bill can file quarterly tax payments

How is a cash surplus (or deficit) on a statement of cash flows calculated? ch.2

cash inflows (receipts) less cash outflows (expenditures) during a given period of time

Which of the following are tax credits to reduce the amount of taxes owed? Ch. 4

child and dependent care expenses credit, credit for foreign taxes paid

What are two ways a person can implement their financial action plan to achieve financial goals? ch.1

decrease spending, increase income

Other than length of time invested, what other aspect significantly impacts future value?

rate of return

Adjusted gross income is gross income Blank______ by IRA contributions, alimony, and other adjustments. Ch. 4

reduced

Which economic factor measures the difference between a country's exports and imports? ch.1

trade balance

If last year your debt ratio was 1 and this year it is 0.25, that is good news. ch.2

true

Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investments value. ch.1

true

Money management involves financial activities to manage current personal economic resources while planning for the achievement of long-term financial security. ch.2

true

True or false: A key factor in making financial decisions is time value of money. ch.1

true

An example of tax-exempt income is the interest from bonds issued by Blank______, while an example of tax-deferred income is an IRA. Ch. 4

cities or states

Which of the following are variable expenses? ch.2

clothing, entertainment expenses, food

Ben is a father of three children who is concerned about his future career with his company. His investment choices will most likely be Blank______.

conservative, less risky

In times of financial crisis, consumers should:

consider converting investments to cash, reduce spending, know what they owe.

Consumer spending is an economic factor that can predict the following changes in the economy: ch.1

consumer prices, employment, intrest rates, wage levels

Housing starts are an economic factor that can predict the following changes in the economy: ch.1

consumer spending, economic expansion, employment, wage levels