Question 1

If you put $500 in a savings account and make no further deposits,what type of calculation would provide you with the value of the account in 10 years?

Accepted Answer

A) Future value of a single amount 
B) Simple interest 
C) Present value of a single amount 
D) Present value of a series of deposits 
E) Future value of a series of deposits

Question 2

Some savings and investment choices have the potential for higher earnings.However,these may also be difficult to convert to cash when you need the funds.This problem refers to:

Accepted Answer

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

Question 3

The risk premium you receive as a saver is based:

Accepted Answer

A) on your credit rating. 
B) on the amount of money you are borrowing. 
C) only on the uncertainty associated with getting your money back. 
D) only on the expected rate of inflation. 
E) in part on the uncertainty associated with getting your money back and the expected rate of inflation.

Question 4

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

Accepted Answer

A) insurance prospectus. 
B) financial plan. 
C) budget. 
D) investment forecast. 
E) statement.

Question 5

The amount of interest is determined by multiplying the amount in savings by the:

Accepted Answer

A) annual interest rate. 
B) time period. 
C) number of months in a year. 
D) time period and number of months. 
E) annual interest rate and the time period.

Question 6

The study of how wealth is created and distributed is:

Accepted Answer

A) financial planning. 
B) opportunity cost. 
C) inflation. 
D) economics. 
E) a market economy.

Question 7

A major activity in the planning component of financial planning is:

Accepted Answer

A) selecting insurance coverage. 
B) evaluating investment alternatives. 
C) gaining occupational training and experience. 
D) anticipating spending through budgeting. 
E) establishing a line of credit.

Question 8

The appropriate path for daily money decisions will:

Accepted Answer

A) take some time 
B) take some effort 
C) result in lower stress 
D) result in personal financial security 
E) all of these

Question 9

The success of a financial plan will be determined by:

Accepted Answer

A) the amount of debts owed. 
B) the stage of the adult life cycle. 
C) a person's tax status. 
D) the individual's financial habits. 
E) current economic conditions.

Question 10

Developing financial goals does not involve:

Accepted Answer

A) Analyzing your financial values several times a year 
B) Differentiating your needs from your wants 
C) Allowing others to decide which goals you should pursue 
D) Creating specific financial goals 
E) None of these

Question 11

Financial institutions include the following:

Accepted Answer

A) banks. 
B) credit unions. 
C) insurance companies. 
D) investment companies. 
E) All of these.

Question 12

Sophia Martin wants to travel after she retires as well as pay off the balance of the loan she has on the home she owns.Which step in the financial planning process does this situation demonstrate?

Accepted Answer

A) Determining her current financial situation 
B) Developing her financial goals 
C) Identifying alternative courses of action 
D) Evaluating her alternatives 
E) Implementing her financial plan

Question 13

Inflation risk may include changes in buying power and:

Accepted Answer

A) rising prices. 
B) falling prices. 
C) decisions to buy later. 
D) decisions to buy now. 
E) All of these.

Question 14

An example of a personal opportunity cost would be:

Accepted Answer

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 15

Explain why borrowers benefit more than lenders in times of high inflation.

Accepted Answer

The answer of Explain why borrowers benefit more than lenders...

Question 16

The main economic influence that causes inflation is:

Accepted Answer

A) Changes in the stock market. 
B) Decreases in interest rates. 
C) Increases in employment. 
D) Decreases in government spending. 
E) Increases in demand without increases in supply.

Question 17

Natalie Smith's new job is very demanding.She regularly works long hours and on the weekends.As a result,Natalie has not had much time for her family and friends.This is an example of:

Accepted Answer

A) deflation. 
B) financial opportunity cost. 
C) personal opportunity cost. 
D) time value of money. 
E) inflation.

Question 18

If a person deposited $75 a month for 5 years earning 7 percent,this would involve what type of computation?

Accepted Answer

A) Simple interest 
B) Future value of a single amount 
C) Future value of a series of deposits 
D) Present value of a single amount 
E) Present value of a series of deposits

Question 19

Using the services of financial institutions to research a situation will be most evident in your effort to:

Accepted Answer

A) develop financial goals. 
B) review and revise your financial plan. 
C) determine your current financial situation. 
D) evaluate your alternatives. 
E) create a financial action plan.

Question 20

The annual price increase for most goods and services measured by the Bureau of Labor Statistics is called ________.

Accepted Answer

A) deflation 
B) inflation 
C) the consumer price index 
D) the price calculator 
E) the goods index

Exam 1: Personal Finance Basics and the Time Value of Money