Personal Finance Exam 1

If a $10,000 investment earns a 4 % annual return, what should its value be after one year? - $100 - $400 - $4,000 - $10,000 - $10,400

$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? - $100.00 - $112.00 - $112.50 - $114.00 - $121.60

$112.50

If a $10,000 investment earns a 7% annual return, what should its value be after 6 years? - $10,000 - $10,700 - $15,000 - $15,010 - $15,100

$15,010

If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months? - $5.00 - $15.00 - $25.00 - $30.00 - $500.00

$15.00

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 - $18,000 - $5,727 - $25,000 - None of these choices are correct.

$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? - $2,000 - $11,970 - $18,000 - $22,054 - $30,500

$22,054

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? - $885 - $889 - $1,000 - $1,030 - $1,040

$889

If a $10,000 investment earns interest of $500 in one year, what is its rate of return? - 5 percent - 10 percent - 50 percent - 75 percent - 100 percent

5 percent

If inflation is expected to be 8 percent, how long will it take for prices to double? - 6 years - 7 years - 9 years - 12 years - 18 years

9 years

The saving component of financial planning focuses on long-term security and includes: - A regular savings plan for emergencies - A current will - Bankruptcy counseling - A realistic budget for your current financial situation - Minimizing transportation expenses through careful planning

A regular savings plan for emergencies

When creating a personal balance sheet, which of the following is considered to be a personal possession asset? A) A five-year-old television set B) A home C) Cash in a checking account D) Retirement accounts E) Vacation property

A) A five-year-old television set

Another name for a statement of financial position is a A) Balance sheet. B) Bank statement. C) Budget. D) Cash flow statement. E) Time value of money report.

A) Balance sheet.

The document that would report your current financial position is the A) Balance sheet. B) Cash flow statement. C) Budget. D) Bank statement. E) Credit card statement.

A) Balance sheet.

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a A) Personal balance sheet. B) Bank statement. C) Budget. D) Cash flow statement. E) Time value of money report.

A) Personal balance sheet.

Which of the following is most correct? A) Rare coins and stamps belong in a safe deposit box. B) A marriage certificate should be kept in a home file. C) W-2s for tax records belong in a safe deposit box. D) A current budget belongs in your safe deposit box. E) Adoption papers belong in a home file.

A) Rare coins and stamps belong in a safe deposit box.

Common stock and bond brokerage statements are an example of a(n) ________ record. A) investment B) insurance C) estate planning D) tax E) consumer purchase

A) investment

The stages in the family situation and financial needs of an adult is called the - Financial planning process - Budgeting procedure - Personal economic cycle - Adult life cycle - Tax planning process

Adult life cycle

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of A) $20,000. B) $40,000. C) $60,000. D) $100,000. E) $160,000.

B) $40,000.

Financial experts recommend monthly savings of ________ of gross income. A) 0% B) 5-10% C) 20% D) 25-35% E) 50%

B) 5-10%

How long should you keep documents relating to investments? A) No need to since the broker probably has a copy. B) As long as you own these items. C) Seven years. D) Ten years. E) Permanently.

B) As long as you own these items.

The document that would tell you what you received and spent over the past month is the A) Balance sheet. B) Cash flow statement. C) Budget. D) Bank statement. E) Credit card statement.

B) Cash flow statement.

Money management refers to A) Preparing personal financial statements. B) Day-to-day financial activities. C) Trade-offs that occur with financial decisions. D) Storing financial records for easy access. E) Spending money on current living expenses.

B) Day-to-day financial activities.

The money left over after paying for housing, food, and other necessities is called A) Monthly savings. B) Discretionary income. C) Disposable income. D) Gross income. E) Take-home pay.

B) Discretionary income.

A home file should be used to keep A) All financial documents and records. B) Financial records for current needs. C) Documents that require maximum security. D) Obsolete financial documents. E) Records that are difficult to replace.

B) Financial records for current needs.

The inability to pay debts when they are due because liabilities far exceed the value of assets is called A) Liabilities. B) Insolvency. C) Net worth. D) Cash flow. E) Liquid assets.

B) Insolvency.

Which of the following appears as a cash outflow on a cash flow statement? A) Home value B) Loan payment C) Net worth D) Balance of mortgage E) Cash value of life insurance

B) Loan payment

The amount you would have left if all assets were sold and all debts were paid in full is called your A) Net assets. B) Net worth. C) Total liabilities. D) Total income. E) Budgeted expenses.

B) Net worth.

Which of the following are two personal financial statements that you create yourself? A) Budget and credit card statements B) Personal balance sheet and cash flow statement C) Checkbook and budget D) Tax returns E) Bank statement and a balance sheet

B) Personal balance sheet and cash flow statement

A budget system that involves envelopes, folders, or containers to hold money or slips of paper is called a(n) A) Mental budget. B) Physical budget. C) Written budget. D) Digital budget. E) Allocated budget.

B) Physical budget.

Disposable income equals A) Gross income. B) The amount a person or household has to spend. C) Money left over after paying for housing, food, and other necessities. D) Social Security taxes. E) The amount being saved each month.

B) The amount a person or household has to spend.

When creating a personal balance sheet, which of the following is a real estate asset? A) Cash value of life insurance B) Vacation property C) Possessions in your home D) Investments for financing children's education E) Retirement accounts

B) Vacation property

Which of the following appears as a cash outflow on a cash flow statement? A) Liquid assets B) Variable expenses C) Net worth D) Personal possessions E) Real estate assets

B) Variable expenses

Who is less likely to be harmed by inflation? - Retired people - Lenders - Borrowers - Fixed income consumers - Financial regulators

Borrowers

The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning. - Sharing - Savings - Obtaining - Borrowing - Protecting

Borrowing

The current financial position of an individual or family is best presented in the form of a: A) Budget. B) Cash flow statement. C) Balance sheet. D) Bank statement. E) Time value of money report.

C) Balance sheet.

Items that you own that have a monetary value are referred to as A) Liabilities. B) Variable expenses. C) Net worth. D) Income. E) Assets.

E) Assets.

The document that would be most useful to plan spending and saving to achieve financial goals is the A) Balance sheet. B) Monthly investment brokerage statement. C) Budget. D) Bank statement. E) Credit card statement.

C) Budget.

Which of the following will increase the net worth of a household? A) Decrease saving by $50 per month B) Increase the amount borrowed for major purchases C) Decrease spending by $5 per day D) Invest in possessions whose values do not increase E) Increase spending by $5 per day

C) Decrease spending by $5 per day

After having established a spending plan, it is important to A) File the budget in a safe deposit box. B) Compare it to the previous budget. C) Keep track of your actual income and expenses. D) Pay attention only to expenses that are more than 10 percent of your salary. E) None of these are true since budgets are just estimates.

C) Keep track of your actual income and expenses.

Take-home pay is also called A) Monthly savings. B) Discretionary income. C) Net pay. D) Gross income. E) Deductions.

C) Net pay.

A budget system that can be kept on notebook paper or accounting paper is called a(n) A) Mental budget. B) Physical budget. C) Written budget. D) Digital budget. E) Allocated budget.

C) Written budget.

Future value computations are often referred to as - Discounting. - Present value. - Compounding. - Simple interest. - An annuity.

Compounding

A budget deficit would result when a person's or family's A) Actual spending is less than planned spending. B) Assets exceed liabilities. C) Actual spending equals planned spending. D) Actual spending exceeds planned spending. E) Net worth decreases.

D) Actual spending exceeds planned spending.

The equation to calculate net worth is A) Assets minus Cash outflows = Net worth. B) Cash inflows minus Liabilities = Net worth. C) Cash inflows minus Cash outflows = Net worth. D) Assets minus Liability = Net Worth E) Cash inflows + Liabilities = Net worth.

D) Assets minus Liability = Net Worth

An example of a fixed expense is A) Medical expenses. B) Gifts. C) Utilities. D) Home rental payment. E) Recreation.

D) Home rental payment.

Which of the following is a cash inflow? A) Payment for rent B) Purchase of groceries C) Payment for loan D) Income from employment E) Payment for medical expenses

D) Income from employment

A personal balance sheet reports A) Amounts budgeted for spending. B) Income and expenses for a period of time. C) Earnings on savings and investments. D) Items owned, amounts owed, and your net worth. E) Family financial goals.

D) Items owned, amounts owed, and your net worth.

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe? A) W-2 forms B) Personal financial statements C) Warranties D) Marriage certificates E) Bank statements

D) Marriage certificates

Discretionary income equals A) Gross income. B) Take-home pay. C) The amount being saved each month. D) Money left over after paying for housing, food, and other necessities. E) Social Security taxes.

D) Money left over after paying for housing, food, and other necessities.

When creating a budget, which of the following statements is true? A) Include in income the bonuses and gifts you expect to receive. B) It is easier to create a budget if your earnings vary by season. C) Common financial problems can be maximized through budgeting. D) Numbers in the budget are estimates. E) It is better to overestimate your income for next year.

D) Numbers in the budget are estimates.

When creating a personal balance sheet, which of the following is an investment asset? A) Cash surrender value of life insurance B) Checking account C) Personal possessions in your home D) Retirement account such as a 401k E) Vacation property

D) Retirement account such as a 401k

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns? A) Until you receive your refund B) Until the end of the current year C) Three years D) Seven-Ten years E) Permanently

D) Seven-Ten years

The first step of the financial planning process is to - Develop financial goals. - Implement the financial plan. - Determine your current financial situation. - Evaluate and revise the financial plan. - Create a financial action plan.

Determine your current financial situation

Present value computations are also referred to as - Discounting. - Future value. - Compounding. - Simple interest. - An annuity.

Discounting

________ goals relate to infrequently purchased, expensive tangible items. - Short-term - Intangible-purchase - Durable-product - Consumable-products - Intermediate

Durable-product

When creating a budget, it is important to A) Save the amount you have left at the end of the month. B) Set aside savings after your variable expenses are paid. C) Save an amount no more than 3% of your annual income in an emergency fund. D) Spend the amount of money you have budgeted in each category. E) "Pay yourself first" by setting aside savings before other expenses are budgeted.

E) "Pay yourself first" by setting aside savings before other expenses are budgeted.

Which of the following is a liquid asset? A) Savings/money market accounts B) Cash surrender value of life insurance C) Checking account balance D) Money market accounts E) All of these are liquid assets

E) All of these are liquid assets

Which of the following is a component of money management? A) Storing and maintaining personal financial records and documents. B) Creating a balance sheet. C) Creating and implementing a plan for spending and saving. D) Creating a cash flow statement. E) All of these choices are components of money management.

E) All of these choices are components of money management.

The main purposes of personal financial statements are to A) Report your current financial position. B) Measure your progress toward financial goals. C) Maintain information about your financial activities. D) Provide data for preparing tax forms or applying for credit. E) All of these choices are correct

E) All of these choices are correct

When household budgets must be cut, which of the following categories would be most difficult to cut? A) Vacations B) Lawn services C) Cable D) Charitable donations E) Auto insurance

E) Auto insurance

An example of a variable expense is a(n) A) Mortgage or rent payment. B) Installment loan payment. C) Monthly train ticket for commuting to work. D) Monthly allocation for life insurance. E) Electric bill.

E) Electric bill.

All of the following are ways that households can increase their net worth except A) Increase their savings. B) Reduce spending. C) Increase value of investments. D) Decrease their debt ratio. E) Increase their debt ratio.

E) Increase their debt ratio.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep documents relating to the purchase and sale of real estate? A) Until the mortgage is paid off B) Until you move out of the house C) Three years D) Seven years E) Indefinitely

E) Indefinitely

When creating a personal balance sheet, which of the following is a current liability? A) Checking account B) Thirty-year mortgage C) Educational loan D) 5-year home equity loan E) Medical bill

E) Medical bill

How long should you keep your most current will? A) No need to keep it since your lawyer probably has a photocopy. B) One year. C) Three years. D) Seven years. E) Permanently.

E) Permanently.

All of the following are sources of income except A) Interest earned on savings B) Commissions C) Dividends D) Salary E) Social Security taxes

E) Social Security taxes

Which of the following is a deduction to determine take-home pay? A) Interest earned on savings B) Commissions C) Dividends D) Housing, food and other living expenses E) Social Security taxes

E) Social Security taxes

Which of the following is most correct? A) A current budget belongs in your safe deposit box. B) A warranty belongs in a safe deposit box. C) Adoption papers belong in a home file. D) A death certificate should be kept in a home file. E) Tax records belong in a home file.

E) Tax records belong in a home file.

All of the following are fixed expenses except A) A mortgage or rent payment. B) An installment loan payment. C) A monthly train ticket for commuting to work. D) A monthly allocation for life insurance. E) Utilities.

E) Utilities.

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? - Develop your financial goals. - Review and revise your financial plan. - Determine your current financial situation. - Evaluate your alternatives. - Create your financial plan of action.

Evaluate your alternatives

Every decision involves uncertainty, which is referred to as - Consequences of choices. - Alternative courses of action. - Financial goals. - Personal values. - Evaluating risk.

Evaluating risk

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n) - Insurance prospectus. - Financial plan. - Budget. - Investment forecast. - Statement.

Financial plan

Which of the following is correct? - A car purchase is a consumable-product goal. - Entertainment is a durable-product goal. - Appliances and sporting equipment are intangible-purchase goals. - Leisure and education are durable-product goals. - Food and clothing are consumable-product goals.

Food and clothing are consumable-product goals.

Which of the following is an example of a financial opportunity cost? -Renting an apartment near school -Forgoing wages to attend school - Organizing income tax records - Purchasing automobile insurance - Using a personal computer for financial planning

Forgoing wages to attend school

An investor should expect to receive a risk premium for - Higher interest rates - Lower consumer prices - Higher uncertainty about getting his/her money back - Reduced credit ratings - Expected lower inflation

Higher uncertainty about getting his/her money back

An advantage of effective personal financial planning is: - The use of low-interest savings - Increased impulse spending - Increased control of financial affairs - More credit card debt - Less monitoring of investments

Increased control of financial affairs

Which of the following best describes the concept of the time value of money? - Personal opportunity costs such as time lost on an activity. - Financial decisions that require borrowing funds from a financial institution. - Changes in interest rates due to changes in the supply and demand for money in our economy. - Increases in an amount of money as a result of interest earned. - Changing demographic trends in our society

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. - Short-term - Intermediate - Long-term - Intangible - Durable

Long-term

Increased consumer saving and investing is likely to be accompanied by - Lower union wages - Higher interest rates - Lower production costs - Lower interest rates - Higher inflation

Lower interest rates

The 'borrowing' component in a financial plan relates to - Acquiring adequate insurance coverage - Investing for long-term growth - Setting up a budget - Obtaining financial resources from employment, investments or ownership - Maintaining control over credit-buying habits

Maintaining control over credit-buying habits

If I can invest a dollar today and earn interest on it, then it should be worth ________ in the future. - Less - The same as - More - Either less or the same as - Either the same as or more

More

Attempts to increase income through employment are part of the ________ component of financial planning. - Obtaining - Planning - Saving - Borrowing - Spending

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 health - Personal opportunity cost relating to time - Personal opportunity cost relating to abilities - Personal opportunity cost relating to knowledge - Unexpected personal opportunity cost

Personal opportunity cost relating to time

Which of the following would increase the interest rate for a loan? - Poor credit rating - Higher down payment - Expected lower inflation - Lower consumer prices - Short time to maturity

Poor credit rating

Many Americans have money problems because of - Poor planning and weak money management habits - Too many clearly defined goals - Proper use of credit - Not enough advertising to make effective decisions - Controlled spending

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 - Identify alternative courses of action - Determine current financial situation - Evaluate alternatives - Develop your financial goals

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. - Implement your financial action plan. - Develop your financial goals. - Determine current financial situation. - Create your financial plan of action.

Review and revise your financial plan more frequently

Making financial decisions related to income involves all of the following except - Spending - Saving - Sharing - Taking - All of these are financial decisions

Taking

The consumer price index measures: - The prices of a fixed basket of goods and services in the United States - The prices of goods and services in Bolivia - The average change in prices of a fixed basket of goods and services of urban consumers - The change in prices of a fixed basket of goods and services around the world - None of these choices are correct.

The average change in prices of a fixed basket of goods and services of urban consumers

An example of a personal opportunity cost would be - Interest lost by using savings to make a purchase. - Higher earnings on savings that must be kept on deposit a minimum of six months. - Lost wages due to continuing as a full-time student. - Time comparing several brands of personal computers. - Having to pay a tax penalty due to not having enough withheld from your monthly salary.

Time comparing several brands of personal computers

To calculate the time value of money, we need to consider all of the following except the - Amount of the savings. - Annual interest rate. - Length of time the money is on deposit. - Type of investment. - Principal.

Type of investment

The Rule of 72 is: - A tool to determine the number of years until retirement for an employee - Used to estimate how fast prices will double using a given annual inflation rate - The legal code for requiring companies to provide a match on retirement savings - Used to calculate interest rates for savings - The number of steps required to complete a financial plan

Used to estimate how fast prices will double using a given annual inflation rate

Opportunity cost refers to - Money needed for major consumer purchases. - What you give up by making a choice. - The amount paid for taxes when a purchase is made. - Current interest rates. - Evaluating different alternatives for financial decisions.

What you give up by making a choice

The loss of a job or encountering an illness results in ________ risk. - interest-rate - inflation - income - liquidity - personal

income

The rising or falling of prices that causes changes in buying power is referred to as ________ risk. - interest-rate - inflation - income - personal - liquidity

inflation

Changes in the cost of money is referred to as ________ risk. - interest-rate - inflation - income - personal - liquidity

interest-rate

The difficulty of converting savings and investments to cash is referred to as ________ risk. - interest-rate - inflation - income - personal - liquidity

liquidity

The tangible and intangible factors that create a less than desirable situation is referred to as ________ risk. - interest-rate - inflation - income - liquidity - personal

personal