Personal Financial Planning Ch1 Personal Financing Planning in Action

If you desire to have $20,000 for a down payment for a house in four years, what amount would you need to deposit today? Assume that your money will earn 4 percent. Use Exhibit 1-C. (Round your PV factor to 3 decimal places and final answer to the nearest whole dollar.) Deposit $

$17,100

If you borrow $10,000 with an interest rate of 8 percent to be repaid in six equal payments at the end of the next 6 years, what would be the amount of each payment? Use Exhibit 1-D. (Round your PV factor to 3 decimal places and final answer to the nearest whole dollar.) Amount per payment $

$2163

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $10,000 available each year for various school and living expenses. Use Exhibit 1-D. If he earns 4 percent on his money, how much must he deposit at the start of his studies to be able to withdraw $10,000 a year for three years? (Round PV factor to 3 decimal places and final answer to the nearest whole dollar.) Deposit $17,100

$27,750

A family spends $40,000 a year for living expenses. If prices increase 2 percent a year for the next two years, what amount will the family need for their annual living expenses in two years? Use Exhibit 1-A. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.) Living expenses $

$41,600

In 2005, selected automobiles had an average cost of $15,000. The average cost of those same automobiles is now $17,250. What was the rate of increase for these automobiles between the two time periods? (Round your answer to the nearest whole percent.) Rate of increase %

15%

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

financial plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

inflation

A rise in the general level of prices.

bankruptcy

A set of federal laws allowing you to either restructure your debts or remove certain debts.

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

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 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.

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.

values

Ideas and principles that a person considers correct, desirable, and important.

time value of money

Increase in an amount of money as a result of interest earned.

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

The time value of money refers to 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.

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

Obtaining

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

Taking

future value

The amount to which current savings will increase based on a certain interest rate and a certain time period; also referred to as compounding.

present value

The current value for a future amount based on a certain interest rate and a certain time period; also referred to as discounting.

personal financial planning

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

adult life cycle

The stages in the family situation and financial needs of an adult.

economics

The study of how wealth is created and distributed.

opportunity cost

What a person gives up by making a choice.