Deck 1: Personal Financial Planning in Action

Question 1

Risks associated with most financial decisions are easy to measure.

Answer 1

False

Question 2

Opportunity costs refer to time,money,and other resources that are given up when a choice is made.

Answer 2

True

Question 3

Financial Plans are only created by financial planners.

Answer 3

False

Question 4

Interest earned is calculated by multiplying the principal times the opportunity cost.

Question 5

Retirement planning includes thinking about your housing situation,recreational activities,and possible volunteer or part-time work.

Question 6

Inflation reduces the buying power of money.

Question 7

Developing a budget is part of the "spending" component of financial planning activities.

Question 8

Personal financial planning is the process of managing your money to achieve personal economic satisfaction.

Question 9

Short-term goals are usually achieved within the next year or so.

Question 10

Opportunity costs refer to money already spent.

Question 11

Purchasing a car is an example of a durable-product goal.

Question 12

The life situation of a household has little influence on personal financial planning decisions.

Question 13

Inflation is most harmful to people with incomes expected to increase.

Question 14

A financial plan is an informal report that analyzes past financial decisions.

Question 15

When prices are increasing at a rate of 6 percent,the cost of products would double in about 12 years.

Question 16

Purchasing a car is an example of a consumable-product goal.

Question 17

Borrowing by consumers and businesses usually results in lower interest rates.

Question 18

The financial activities for a young single will probably be the same as those for an older couple with no dependent children at home.

Question 19

Intermediate goals are usually achieved within the next year or so.

Question 20

A financial plan is another name for a budget.

Question 21

John Jones was laid off from his job two months ago.He just received an offer for a position that pays 2/3 the salary of his old job.Why should he set up a financial plan?

A) To increase the effectiveness of obtaining, using, and protecting his financial resources.
B) To decrease control of his financial affairs regarding debt.
C) To accept the loss of freedom from financial worries due to his new position.
D) To learn how to manage with less savings.
E) To find out why he was laid off.

Question 22

Which of the following would increase the interest rate for a loan?

A) Poor credit rating
B) Higher down payment
C) Constant interest rates
D) Lower consumer prices
E) Short time to maturity

Question 23

Attempts to increase income are part of the _____________ component of financial planning.

A) Obtaining
B) Planning
C) Saving
D) Borrowing
E) Spending

Question 24

Which of the following short-term goals is stated most clearly?

A)Buy a car for less than $17,000 within 6 months
B)Retire in 10 years at age 65 with $2,000,000 in my 401(k)account
C)Purchase a house with a mortgage no greater than $150,000 within 5 years
D)Set up an emergency fund
E)Invest $50 per month for the next 18 years for my nephew's college fund

Question 25

The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.

A) Sharing
B) Savings
C) Obtaining
D) Borrowing
E) Protecting

Question 26

The Rule of 72 is:

A) A tool to determine the number of years until retirement for an employee
B) Used to estimate how long it takes for prices to double using a given annual inflation rate
C) The legal code for requiring companies to provide a match on retirement savings
D) Used to calculate interest rates for savings
E) The number of steps required to complete a financial plan

Question 27

A question associated with the saving component of financial planning is:

A) Do you have an adequate emergency fund?
B) Is your will current?
C) Is your investment program appropriate to your income and tax situation?
D) Do you have a realistic budget for your current financial situation?
E) Are your transportation expenses minimized through careful planning?

Question 28

An advantage of personal financial planning is:

A) The use of low-interest savings
B) Increased impulse spending
C) Increased control of financial affairs
D) More credit card debt
E) Less monitoring of investments

Question 29

Who is most likely to benefit by inflation?

A) Retired people
B) Lenders
C) Borrowers
D) Low-income consumers
E) Government

Question 30

The major function of a financial plan is to

A) Reduce taxes.
B) Increase savings.
C) Achieve financial goals.
D) Improve your credit rating.
E) Obtain adequate insurance protection.

Question 31

The consumer price index reflects:

A) The prices of products and services in the United States
B) The prices of products and services around the world
C) The average change in prices of products and services of urban consumers
D) The change in prices of products and services around the world
E) None of the above

Question 32

Which of the following long-term goals is stated most clearly?

A)Buy a car for less than $17,000 within 6 months
B)Retire in 10 years at age 65
C)Purchase a house with a mortgage no greater than $150,000 within 3 years
D)Set up an emergency fund
E)Invest $50 per month for the next 18 years for my nephew's college fund

Question 33

Lower consumer saving and investing is likely to be accompanied by

A) Lower union wages
B) Lower interest rates
C) Lower production costs
D) Higher interest rates
E) Higher exports

Question 34

Sally Smith's friends have told her that they think she should consider a visit to a personal financial planner.Why do you think her friends made the suggestion?

A) Sally usually saves 10 percent of her paycheck for long-term goals.
B) Sally has no credit card debt.
C) Sally tracks her investments and makes changes to her allocations once per year.
D) Sally plans to quit her job and volunteer for local organizations.
E) Sally has used a budget for years.

Question 35

The actual cost of living increase for a household will be:

A) Greater than the inflation rate as reported by the CPI since the index excludes the product or service with the highest inflation rate for the past 12 months
B) Lower than the inflation rate as reported by the CPI since the index excludes the product or service with the lowest inflation rate for the past 12 months
C) Equal to the inflation rate as reported by the CPI since it includes all products and services whether or not the prices have changed in the past 12 months
D) Either greater than or less than the inflation rate as reported by the CPI depending on the household's cost of necessities purchased
E) Zero since the CPI does not measure consumer price changes

Question 36

A formalized report that summarizes your current financial situation,analyzes your financial needs,and recommends a direction for your financial activities is a(n)

A) Insurance prospectus.
B) Financial plan.
C) Budget.
D) Investment forecast.
E) Statement.

Question 37

The stages that an individual goes through based on stages in the family and financial needs is called the

A) Financial planning process
B) Budgeting procedure
C) Personal economic cycle
D) Adult life cycle
E) Tax planning process

Question 38

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt.He usually makes minimum payments on his debt and he has been late with three payments in the last year.He wants to buy a new car but was told that his interest rate on a loan would be very high.What is the most likely reason this might be so?

A) General interest rates are very low
B) His credit rating is poor because of his late payments
C) He already has a student loan outstanding
D) Recent graduates are not allowed to have more than $25,000 in debt outstanding
E) Interest rates must be tied to the CPI

Question 39

The 'borrowing' activity in a financial plan relates to

A) Acquiring adequate insurance coverage
B) Investing for long-term growth
C) Setting up a budget
D) Obtaining financial resources from employment, investments or ownership
E) Maintaining control of credit-buying habits

Question 40

An investor should expect to receive a risk premium for

A) Expanded exports
B) Lower consumer prices
C) Higher uncertainty about getting his/her money back
D) Reduced availability of investments
E) Expected lower inflation

Question 41

An example of a personal opportunity cost would be

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

Question 42

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

A) Less
B) The same as
C) More
D) Either less or the same as
E) Either the same as or more

Question 43

Many Americans have money problems because of

A) Poor planning and weak money management habits
B) Too many clearly defined goals
C) Proper use of credit
D) Not enough advertising to make effective decisions
E) Controlled spending

Question 44

Opportunity cost refers to

A) Money needed for major consumer purchases.
B) The trade-off of a decision.
C) The amount paid for taxes when a purchase is made.
D) Current interest rates.
E) Evaluating different alternatives for financial decisions.

Question 45

Which of the following is correct?

A) A car purchase is a consumable-product goal
B) Entertainment is a durable-product goal
C) Appliances and sporting equipment are intangible-purchase goals
D) Leisure and education are durable-product goals
E) Food and clothing are consumable-product goals

Question 46

Which of the following intermediate goals is stated most clearly?

A)Buy a car for less than $17,000 within 6 months
B)Retire in 10 years at age 65 with $2,000,000 in my 401(k)account
C)Purchase a house with a mortgage no greater than $150,000 within 3 years
D)Set up an emergency fund
E)Invest $50 per month for the next 18 years for my nephew's college fund

Question 47

Rob Redbird 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?

A) Fixed
B) Opportunity
C) Unexpected
D) Unavoidable
E) Tangible

Question 48

The goal of purchasing a long-term care insurance policy would be most appropriate for

A) A young couple without children.
B) A single mother with a preschool daughter.
C) A recent college graduate.
D) A single adult nearing retirement age.
E) An extremely wealthy executive.

Question 49

Which of the following is an example of opportunity cost?

A) Renting an apartment near school
B) Saving money instead of taking a vacation
C) Organizing income tax records
D) Purchasing automobile insurance
E) Using a personal computer for financial planning

Question 50

Fran Gardner has a goal of "saving $25 per month for a TV".Fran's goal lacks

A) Measurable terms
B) A realistic perspective
C) An action-orientation
D) A specific objective
E) A time frame

Question 51

To develop a financial plan,one should

A) Set several general goals for the short-term
B) Only set long-term goals after short-term goals have been accomplished
C) Focus on intermediate goals first
D) Identify specific, realistic goals that are measurable along with a time frame and an action plan
E) Not worry about whether or not the goals can be achieved based on one's income and life situation

Question 52

Future value computations are also referred to as

A) Discounting.
B) Add-on interest.
C) Compounding.
D) Simple interest.
E) An annuity.

Question 53

Present value computations are also referred to as

A) Discounting.
B) Add-on interest.
C) Compounding.
D) Simple interest.
E) An annuity.

Question 54

_________ goals relate to infrequently purchased,expensive items.

A) Short-term
B) Intangible-purchase
C) Durable-product
D) Consumable-products
E) Intermediate

Question 55

Which of the following goals would be the easiest to implement and measure?

A) Invest $2,000 a year for retirement.
B) Reduce our debt payments.
C) Save funds for an annual vacation.
D) Save $100 a month to create a $4,000 emergency fund.
E) Spend less each month.

Question 56

The time value of money refers to

A) Personal opportunity costs such as time lost on an activity.
B) Financial decisions that require borrowing funds from a financial institution.
C) Changes in interest rates due to changes in the supply and demand for money in our economy.
D) Increases in an amount of money as a result of interest earned.
E) Changing demographic trends in our society.

Question 57

The goal of investing $50 per month for the next 18 years for your nephew's college fund is a(n)__________ goal.

A) Short-term
B) Intermediate
C) Long-term
D) Intangible
E) Durable

Question 58

To calculate the time value of money,we need to consider all of the following except the

A) amount of the savings.
B) Annual interest rate.
C) Length of time the money is invested.
D) Type of investment.
E) Principal.

Question 59

Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 years,so he can purchase a used car at that time.What type of computation would he use to determine the amount he will have for his purchase?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 60

Wanda Green wants to take out a 4 year loan to purchase a car.What type of computation would she use to calculate her monthly payments?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 61

Place the following steps for a personal financial plan in the proper order: 1.Review and revise your plan
2)Identify alternative courses of action
3)Create and implement your financial action plan
4)Determine your current financial situation
5)Evaluate your alternatives
6)Develop your financial goals

A) 6, 1, 2, 5, 3, 4
B) 4, 2, 6, 5, 3, 1
C) 3, 6, 4, 2, 5, 1
D) 4, 6, 2, 5, 3, 1
E) 6, 2, 5, 4, 1, 3

Question 62

If a $10,000 investment earns a 7% annual return,what should its value be after 5 years?

A) $10,035
B) $14,070
C) $14,700
D) $14,030
E) $14,300

Question 63

The first step of the financial planning process is to

A) Develop financial goals.
B) Implement the financial plan.
C) Analyze your current financial situation.
D) Evaluate and revise your actions.
E) Create a financial plan of action.

Question 64

The uncertainty associated with decision making is referred to as

A) Opportunity cost.
B) Selection of alternatives.
C) Financial goals.
D) Personal values.
E) Risk.

Question 65

Rebecca Gladyn plans to attend graduate school in 5 years.She thinks that she will need a total of $32,000 to pay for school,and she wants to save money each month to reach her goal.What type of computation should she use?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 66

The step in the personal financial planning process that follows "Create and implement your financial action plan" is

A) Review and revise your financial plan
B) Identify alternative courses of action
C) Determine your current financial situation
D) Evaluate your alternatives
E) Develop your financial goals

Question 67

Using the services of financial institutions or specialists (such as insurance agents or investment brokers)will be most evident in your effort to

A) Develop financial goals.
B) Evaluate and revise your actions.
C) Analyze your current financial situation.
D) Implement your financial plan.
E) Create a financial plan of action.

Question 68

Paul Jacoby wants to deposit money today for a vacation that he plans to take to Asia after he graduates from Graduate School.Which formula should he use to determine the amount of money he will have available for his vacation?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 69

The loss of a job is referred to as ____________ risk.

A) interest-rate
B) inflation
C) income
D) liquidity
E) personal

Question 70

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

A) interest-rate
B) inflation
C) income
D) liquidity
E) personal

Question 71

The changing cost of money is referred to as ____________ risk.

A) interest-rate
B) inflation
C) income
D) liquidity
E) personal

Question 72

Financial decisions related to income include all of the following except

A) Spending
B) Saving
C) Sharing
D) Taking
E) All of these are financial decisions

Question 73

If a $10,000 investment increases to $10,080 in one year,what is its rate of return?

A) .8 percent
B) 1.08 percent
C) 8 percent
D) 80 percent
E) 108 percent

Question 74

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

A) interest-rate
B) inflation
C) income
D) liquidity
E) personal

Question 75

If Patty Shoemaker 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?

A) $30.00
B) $40.00
C) $112.50
D) $112.60
E) $121.60

Question 76

Changes in income,values,and family situation make it necessary to

A) Evaluate and revise your actions.
B) Implement the financial plan.
C) Develop financial goals.
D) Analyze your current personal and financial situation.
E) Create a financial plan of action.

Question 77

The potential for difficulty to convert an investment to cash is referred to as ____________ risk.

A) interest-rate
B) inflation
C) income
D) personal
E) liquidity

Question 78

If inflation is expected to be 9 percent,how long will it take for prices to double?

A) 6 years
B) 7 years
C) 8 years
D) 12 years
E) 18 years

Question 79

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

A) $4,000
B) $4,100
C) $10,000
D) $10,040
E) $10,400

Question 80

Tim Calibe received a $500 gift from his grandparents.He wants to invest this money for the down payment of a house that he plans to purchase in 3 years.What type of computation should he use?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity