PFS Unit 1

Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000

$3,000

The first step of the financial planning process is to

Determine your current financial situation.

Present value computations are also referred to as

Discounting

The money left over after paying for housing, food, and other necessities is called

Discretionary income

________ goals relate to infrequently purchased, expensive tangible items.

Durable-product

The amount you would have left if all assets were sold and all debts were paid in full is called your

Net worth.

When creating a budget, which of the following statements is true?

Numbers in the budget are estimates.

Attempts to increase income through employment are part of the ________ component of financial planning.

Obtaining

Which of the following are two personal financial statements that you create yourself?

Personal balance sheet and cash flow statement

Making financial decisions related to income involves all of the following except

Taking

Which of the following is most correct?

Tax records belong in a home file.

Disposable income equals

The amount a person or household has to spend.

The consumer price index measures

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

Time comparing several brands of personal computers.

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

All of the following are fixed expenses except

Utilities

When creating a personal balance sheet, which of the following is a real estate asset?

Vacation property

Which of the following appears as a cash outflow on a cash flow statement?

Variable expenses

Opportunity cost refers to

What you give up by making a choice.

A budget system that can be kept on notebook paper or accounting paper is called a(n)

Written budget.

Changes in the cost of money is referred to as ________ risk.

interest-rate

Common stock and bond brokerage statements are an example of a(n) ________ record.

investment

The difficulty of converting savings and investments to cash is referred to as ________ risk.

liquidity

Discretionary income equals

money left over after paying for housing, food, and other necessities

Take-home pay is also called

net pay

How long should you keep your most current will?

permanently

The tangible and intangible factors that create a less than desirable situation is referred to as ________ risk.

personal

Which of the following is a deduction to determine take-home pay?

Social Security taxes

When creating a budget, it is important to

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

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of

$40,000

If a $10,000 investment earns interest of $500 in one year, what is its rate of return?

5 percent

Financial experts recommend monthly savings of ________ of gross income.

5-10 percent

If inflation is expected to be 8 percent, how long will it take for prices to double?

9 years

When creating a personal balance sheet, which of the following is considered to be a personal possession asset?

A five-year-old television set

The saving component of financial planning focuses on long-term security and includes.

A regular savings plan for emergencies

Which of the following is a component of money management?

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

The main purposes of personal financial statements are to

A) Provide data for preparing tax forms or applying for credit. B) Maintain information about your financial activities. C) Measure your progress toward financial goals. D) Report your current financial position. All of these are CORRECT

A budget deficit would result when a person's or family's

Actual spending exceeds planned spending.

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

Adult life cycle

Which of the following is a liquid asset?

All of the following: A) Money market accounts B) Checking account balance C) Savings/money market accounts D) Cash surrender value of life insurance

An example of a fixed expense is

Apartment/house rent

How long should you keep documents relating to investments?

As long as you own the items

Items that you own that have a monetary value are referred to as

Assets

The equation to calculate net worth is

Assets minus Liabilities = Net worth.

When household budgets must be cut, which of the following categories would be most difficult to cut?

Auto insurance

Another name for a statement of financial position is a

Balance sheet.

The current financial position of an individual or family is best presented in the form of a.

Balance sheet.

The document that would report your current financial position is the

Balance sheet.

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

The document that would be most useful to plan spending and saving to achieve financial goals is the

Budget

The document that would tell you what you received and spent over the past month is the

Cash flow statement.

Future value computations are often referred to as

Compounding

Which of the following will increase the net worth of a household?

Decrease spending by $5 per day

An example of a variable expense is a(n)

Electric bill.

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.

Every decision involves uncertainty, which is referred to as

Evaluating risk.

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

Which of the following is a cash inflow?

Income from employment

All of the following are ways that households can increase their net worth except

Increase their debt ratio.

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 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?

Indefinitely

The inability to pay debts when they are due because liabilities far exceed the value of assets is called

Insolvency

A personal balance sheet reports

Items owned, amounts owed, and your net worth.

After having established a spending plan, it is important to

Keep track of your actual income and expenses.

Which of the following appears as a cash outflow on a cash flow statement?

Loan payment

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) ________ goal.

Long term Goal

Increased consumer saving and investing is likely to be accompanied by

Lower interest rates

The 'borrowing' component in a financial plan relates to

Maintaining control over credit-buying habits

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe?

Marriage certificates

When creating a personal balance sheet, which of the following is a current liability?

Medical bill

If I can invest a dollar today and earn interest on it, then it should be worth ________ in the future.

More

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a

Personal balance sheet.

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

A budget system that involves envelopes, folders, or containers to hold money or slips of paper is called a(n)

Physical budget.

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

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

Which of the following is most correct?

Rare coins and stamps belong in a safe deposit box.

When creating a personal balance sheet, which of the following is an investment asset?

Retirement account such as a 401k

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.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns?

Seven Years

All of the following are sources of income except

Social Security taxes

Money management refers to

day to day financial activities

A home file should be used to keep.

financial records for current needs.

The loss of a job or encountering an illness results in ________ risk.

income

The rising or falling of prices that causes changes in buying power is referred to as ________ risk.

inflation