Personal Financial Planning - Exam 1 - Wiley

You have $450 in your checking account when your ATM card and PIN are stolen. You could lose up to ____ if you report the lost ATM card within 8 business days.

$450

Perpetuities

Annuities that continue indefinitely/forever

The Annual Percentage Yield is the same as the:

Effective Rate

A budget is a detailed statement of what income and expenses occurred over time. True or False.

False

A liquid financial asset can be quickly converted into cash, but there is often a large loss of value as a result of the quick conversion to cash. True or False.

False

A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms. Cook responsible for any errors on the return. True or False.

False

A person making $35,000 and spending $30,800 has an average propensity to consume of 80% True or False.

False

A primary reason for holding liquid assets is to save for long-term goals. True or False

False

How long you invest is not nearly as important as the rate of interest you can earn on your investments. True or False.

False

Only the current month's payment on your mortgage loans would be listed on the balance sheet as a liability. True or False.

False

The balance sheet includes information on your latest paycheck. True or False.

False

The need for financial planning declines as your income increases. True or False.

False

The rate of return on liquid assets is relatively high compared to other types of investments. True or False

False

When evaluating your income statement, primary concern should be placed on the income statement. True or False.

False

A balance sheet shows your financial condition as of the time the statement is prepared. True or False.

False (balance sheet include info of Assets, Liabilities, Net Worth)

Amortized loans

Loans that are to be repaid in equal periodic accounts

Nominal Interest Rate vs Effective Interest Rate

Nominal Interest Rate - Contracted rate (better for borrowing) Effective Interest Rate - Annual rate of interest actually being earned (better for lending)

Ordinary Annuity vs. Annuity Due

Ordinary Annuity- Payments made at the end of the period Annuity due - Payments made at beginning of the period

The most important rule for establishing a savings plan is to:

Pay yourself first

Annuity

Series of equal payments at fixed intervals for a specified number of periods

Compounding

The transition from today's value to the value in the future

An investment must be owned over one year in order to qualify for long-term capital gains treatment. True or False.

True

Businesses are key part of the circular flow of income that sustains our free enterprise system. True or False.

True

Compound interest means that a savings account earns interest on the interest previously earned. True or False.

True

Consumers affect businesses by their choices of what goods and services to purchase and by choosing whether they will spend or save their incomes. True or False.

True

Current Consumption effects future consumption. True of False

True

Financial planning is a continuing, life-long process. True or False.

True

If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate. True or False.

True

Inability to reach short-term goals will significantly affect your ability to reach long-term goals. True or False.

True

Inflation means price levels have declined. True or False

True

It takes two keys, one held by the bank and one held by the customer, to open a safe deposit box. True or False.

True

Money market deposit accounts are insured by the FDIC if purchased at an insured bank. True or False

True

Money market mutual fund is one way to participate indirectly in the purchase of money market securities. True or False

True

One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account. True or False.

True

Opening a traditional IRA would allow you to defer taxes on the earning. True or False.

True

Social Security taxes are paid on earned income but not on investment income. True or False.

True

Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or group. True or False.

True

The Congress writes and passes the Internal Revenue Code. True or False.

True

The annual percentage yield (APY) formula considers compounding when determining an interest rate. True or False

True

The income and expenditures statement provides a measure of financial period over time. True or False.

True

You are more likely to achieve your goals if a definite goal date is set. True or False.

True

a charge made on your credit card becomes a liability as soon as the charge is incurred. True of False

True

Whenever you write a check or make a deposit, an entry should be made on your: a. checkbook ledger b. ATM account c. Personal Check d. Deposit Slip e. Check

a. Checkbook ledger

The balance sheet describes a family's wealth: a. at a certain point in time. b. as an annual summary. c. as a time period less than one year. d. at a future time. e. None of these

a. at a certain point in time

If you do not wish to itemize deductions, you can use the: a. standard deduction b. withholding allowance c. pay-as-you-go amount d. bracket deduction e. exemption

a. standard deduciton

Funds in a _____ must remain on deposit for a selected time period in order to avoid an interest penalty. a. certificate of deposit b. passbook savings c. U.S. Treasury bill d. checking account

a.. certificate of deposit

The expenditure categories for your budget should be determined by: a. purchased budget book headings. b. current and expected future spending. c. those used in previous years. d. itemized tax deductions. e. the BLS Urban Family Budget categories

b. Current and expected future spending.

You are preparing your own tax return. The least costly source for answering your questions would be: a. local post office b. IRS 800 numbers c. Private preparation Service d. Tax Accountant e. Tax Lawyers

b. IRS 800 numbers

The last step in the financial planning process is to: a. use financial statements to evaluate results of plans and budgets, taking corrective action as required. b. redefine goals and revise plans and strategies as personal circumstances change. c. implement financial plans and strategies. d. develop financial plans and strategies to achieve goals. e. periodically develop and implement budgets to monitor and control progress towards goals

b. refine goals and revise plans and strategies as personal circumstances change

Financial planning can help us to a. control inflation b. spend wisely c. control unemployment rates

b. spend wisely

Another term for net worth is: a. Net debts b. Assets c. Equity d. Long-term Liabilities

c. Equity

When setting financial goals, one should typically start by setting: a. Short-term goals b. Intermediate-term goals c. long-term goals

c. Long term goals

If you write a check for an amount greater than your account balance, the result will be: a. A stop payment b. an endorsement c. an overdraft d. a reconciliation e. a share draft

c. an overdraft

The federal income tax is: a. integrative b. regressive c. progressive d. flat rate e. none of the above.

c. progressive

The more frequently a bank compounds interest, ____ will be. a. the higher the stated interest rate b. the lower the stated interest rate c. the higher the APY d. the lower the APY

c. the higher the APY (effective interest rate)

You are solvent if your: a. none of these b. total liabilities exceed total assets. c. total assets exceed total liabilities d. total assets exceed net worth e. total liabilities exceed net word

c. total assets exceed total liabilities.

Your __________ is an example of liquid asset. a. car b. home c. checking account d. charge account e. life insurance cash value

checking account

Money is: a. a median of consumption. b. the purpose of our economy c. the reason for all transactions. d. a medium of exchange. e. a measure of propensity to consume.

d. a medium of exchange

Compared to other depository financial institutions, credit unions: a. are run to benefit their members b. pay higher interest on savings c. charge lower rates on loans. d. all of the above are true. e. none of the above are true.

d. all of the above are true

Family financial goals should be: a. very general in nature. b. individually determined. c. set once for a lifetime. d. realistically attainable. e. reserved for retirement planning.

d. realistically attainable

_______ is NOT a liquid asset a. An interest-paying checking account. b. A passbook savings account c. A money market mutual fund d. A checking account e. Bond mutual funds

e. Bond mutual funds

Liquid assets are held in order to: a. meet recurring household expenses. b. make everyday transactions. c. have money for emergency expenditures. d. build reserves for future planned expenditures. e. all of the above.

e. all of the above

Which of the following are legal methods of reducing your current tax liability? a. not reporting taxable income you receive b. investing in a tax deferred annuity c. shifting income to your children. d. writing off deductions above the actual amount spent e. b&c

e. b&c Investing in a tax deferred annuity Shifting income to your children.

A cash budget should help you to: a. achieve your short-term financial goals. b. implement disciplined spending. c. eliminate impulse spending. d. allocate funds to savings and investments. e. do all of these

e. do all of these

When a cash surplus exists on your income and expenditure statements, you can: a. acquire assets b. pay off existing debts. c. increase your savings. d. increase your investments. e. do any of the above.

e. do any of the above.

Your take-home pay is what you are left with after subtracting withholdings from your: a. tax exempt income b. adjusted gross income c. net earnings d. taxable income e. gross earnings

e. gross earnings

Personal financial management is important because it: a. lessens economic differences among individuals. b. limits consumption. c. uses money as an end. d. controls inflation. e. makes personal financial goals easier to achieve.

e. makes personal financial goals easier to achieve