Smartbook Ch 1

Paul invested $185. The interest earned is 4 percent, compounded annually. At the end of two years, Paul will have about:

$200. Reason: $185 X (1.04) X (1.04)=$200.10. Using a financial calculator, input PV=185, I/Y=4, N=2 and solve for FV.

Sam has an investment of $200 that is expected to earn 10%. How much will the investment be worth at the end of the first year if the investment earns simple interest?

$220 Reason: $200 X 0.10 X 1 =$20 in interest. $200 + $20 = $220.

Phillip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually?

$242

Phillip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually?

$242 Reason: $200 X 0.10 X 1 =$20 in interest. $200 + $20 = $220 at the end of the first year. At the end of the second year he'll have: $220 X 0.10 X 1 =$22 in interest. $220 + $22 = $242. Using a financial calculator, input PV=200, I/Y = 10, N=2 and solve for FV.

Paula invested $370. The interest earned is 4 percent, compounded annually. At the end of two years, Paula will have about:

$400. Reason: $370 X (1.04) X (1.04)=$400.19. Using a financial calculator, input PV=370, I/Y=4, N=2, and solve for FV.

John has an interest rate of 7.2% on his savings account. Using the Rule of 72, his money will double in ______ years.

10

Samantha wants to buy a new watch that costs $100. She decides to wait a year. All other factors being equal, if inflation is 4%, the watch will cost $_______ next year. The answer should not include decimals.

104

Alex has an interest rate of 3.6% on his savings account. Using the rule of 72, his money will double in _______years.

20

Tom needs a new washing machine. A new one costs $400. He decides to save and buy one next year. All other factors being equal, if inflation is 4%, the washing machine will cost $_______ next year. This should be an even answer with no need for decimals.

416

In the context of global influences, which of the following statements are true of American consumers and American businesses?

American businesses compete against foreign companies for the spending dollars of American consumers. American consumers provide foreign companies with a market.

Which of the following is not true?

CPI is a totally accurate measure of inflation in the U.S.

The steps in the financial planning process can guide your ______ planning.

Career

The Fed has indirect control over interest rates. The Fed attempts to make adequate funds available for which of the following?

Consumer spending Business growth

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

Daily economic transactions facilitate financial planning activities, which affect personal finance decisions.

Which of the following is the first step in the financial planning process?

Determine your current financial situation

Choosing to save a larger amount each month is an example of which possible course of action that is a part of step three in the financial planning process?

Expanding the current situation

Which of the following are part of evaluating alternative courses of action in the financial planning process?

Evaluating risk Considering inflation risk Considering the consequences of your choices

True or false: Managing risk is not a financial planning activity.

False

The ____________ ___________ System is the central bank of the United States and has significant economic responsibility.

Federal Reserve

Determining your current financial situation is the ______ step in the financial planning process.

First

Which of the following is not part of the fourth step in the personal financial planning process?

Gold prices

Determining your current financial situation involves which of the following?

Identifying current income, savings, living expenses, and debts. Preparing your personal financial statements.

Determining your current financial situation involves which of the following?

Identifying current income, savings, living expenses, and debts. Preparing your personal financial statements..

The measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services is called the consumer price

Index

Which of the following is a possible pitfall in creating and implementing your financial plan?

Inflexibility

According to the text, what are the main reasons Americans have financial problems?

Poor planning and weak management of money habits. Advertising efforts and availability of goods encourage overspending.

Inflation is a rise in the general level of ______.

Prices

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

Saving, Spending, Investing activities

Long-term financial security starts with a regular ______ plan for emergencies and unexpected bills.

Savings

Reviewing and revising your plan is the ______ step in the financial planning process.

Sixth and final step

Which of the following is true?

The consumer price index is based on items calculated in a predetermined manner.

Interest rates represent the:

The cost of borrowing money

"Hidden" inflation exists when:

The cost of necessities rise at a higher rate than nonessential items

What is the purpose of developing and analyzing your financial goals?

To differentiate your needs from your wants.

The rule of 72 is used to determine the time that it would take for your money to double.

True

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.

True

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

True

True or false: Frank can invest his money in the stock market now instead of establishing an emergency fund; however, that would require trade-offs.

True

True or false: Three items needed to calculate future value include: principal, length of time, and annual interest rate.

True

The main purpose of the Federal Reserve is to ______.

act as the central bank and maintain an adequate money supply

According to the text, there are ______ main factors that contribute to Americans having money problems.

Two

American consumers spend dollars on goods and services. The goods and services are manufactured or offered by American companies and companies from other countries. This is an example of:

a global economy and foreign competition

Understanding how the ages of dependents will affect your savings goal is a part of step four in the financial planning process, which involves evaluating your ______.

alternatives

The measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services is called the:

consumer price index

After considering the alternative courses of action to reach financial goals, one of the possible courses of action is to ______.

continue the same course of action

Examples of opportunity costs include:

delaying investment while waiting for the time value of money to increase the pay received. trading in a large car with poor gas mileage for a smaller car that is fuel-efficient. not getting a high yield because you have set aside funds in a low risk investment. not having as much money in savings because you purchased new appliances to save energy costs.

Another name used for calculating present value is ______. Compounding is the other term for future value.

discounting

The rule of 72 is used to estimate the time that it would take for your money to:

double

According to AICPA Insights, which of the following is a common mistake related to implementing a financial plan?

emotional decision making

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is called a(n) ______ ______.

financial plan

Opportunity costs can be viewed in terms of:

financial resources. personal resources.

The amount to which current savings will increase based on a certain interest rate and a certain time period is called:

future value

A rise in the general level of prices is called:

inflation

Key factors for most people in making financial decisions include:

inflation costs financial opportunity costs time value of money

To calculate time value of money for savings, the following items are needed:

length of time principal amount annual interest rate

When people first begin planning for retirement, saving for a child's college education, and planning the purchase of a vacation home, these are usually:

long term goals

The amount of savings, annual interest, and time period is ______ to get the simple interest amount.

multiplied

"Hidden" inflation exists when the cost of ______ rises at a higher rate than ______ items.

necessities; nonessential

According to the text, you should do a complete review of your finances at least:

once a year

Every financial decision has a trade-off, also known as a(n):

opportunity cost

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

opportunity costs

Rachel has been shopping for a new refrigerator over the course of three days and has been putting all her household chores on hold. She finds a refrigerator that fits her needs and purchases it. This is an example of:

personal opportunity costs.

What is the current value of a future amount based on a certain interest rate and a certain time period?

present value

When consumer, business, government, and foreign borrowing increase the demand for money, interest rates tend to:

rise

Developing your financial goals is the ______ step in the financial planning process.

second

Your financial goals are the basis for measuring the progress of which of the following?

spending, saving, investment activities

Interest rates are affected by the following:

supply of money. demand for money.

Identifying alternative courses of action is the ______ step in the financial planning process.

third

An important personal opportunity cost is the ______ used for one activity cannot be used for other activities.

time

Future value is the amount to which current savings will increase based on a certain interest rate and ______.

time period

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

time value of money

According to the text, there are ______ main factors that contribute to Americans having money problems.

two

What is the typical time frame for an intermediate goal?

two to five years