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

Question 1

Opportunity costs refer to what a person gives up when making a choice.

Answer 1

True

Question 2

Higher prices are likely to result from:

A)lower demand by consumers.
B)increased production by business.
C)lower interest rates.
D)increased demand by consumers without increased supply.
E)an increase in the supply of a product.

Answer 2

increased demand by consumers without increased supply.

Question 3

Present value is also referred to as compounding.

Answer 3

False

Question 4

A financial plan is another name for a budget.

Question 5

Economics is the study of using money to achieve financial goals.

Question 6

Lenders benefit more than borrowers in times of high inflation.

Question 7

Personal opportunity costs refer to time,effort,and health that are given up when a decision is made.

Question 8

Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate.

Question 9

The main goal of personal financial planning is managing your money to:

A)save and invest for future needs.
B)reduce a person's tax liability.
C)achieve personal economic satisfaction.
D)spend to achieve financial objectives.
E)save, spend, and borrow based on current needs.

Question 10

Higher consumer prices are 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 11

Planning to buy a car is an example of an intangible goal.

Question 12

Time value of money refers to changes in consumer spending when inflation occurs.

Question 13

Gross Domestic Product (GDP)measures the total value of goods and services produced within a country's borders,excluding items produced with foreign resources.

Question 14

Opportunity costs may be viewed only in terms of financial resources.

Question 15

Who is most likely to benefit from inflation?

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

Question 16

Trade balance is defined as the difference between a country's exports and its imports.

Question 17

Inflation reduces the buying power of the dollar.

Question 18

Increased demand for a product or service will usually result in lower prices for the item.

Question 19

A decrease in the demand for a product or service may result in unemployment from staff reduction.

Question 20

Developing and using a budget is part of the "obtaining" component of financial planning.

Question 21

Higher interest rates can be caused by:

A)a lower money supply.
B)an increase in the money supply.
C)a decrease in consumer borrowing.
D)lower government spending.
E)increased saving and investing by consumers.

Question 22

Increased consumer spending will usually cause:

A)lower consumer prices.
B)reduced employment levels.
C)lower tax revenues.
D)lower interest rates.
E)higher employment levels.

Question 23

The ability to readily convert financial resources into cash without loss of value is referred to as:

A)bankruptcy.
B)liquidity.
C)investing.
D)saving.
E)opportunity cost.

Question 24

When an individual makes a purchase without considering the financial consequences of that purchase,he/she ignores the ______________ aspect of financial planning.

A)borrowing
B)risk management
C)spending
D)retirement and estate planning
E)obtaining

Question 25

The main economic influence that causes inflation is:

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 26

The Fed refers to:

A)government regulation of business.
B)Congress.
C)the Federal Reserve System.
D)the Federal Deposit Insurance Corporation.
E)spending by the federal government.

Question 27

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

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

Question 28

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

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

Question 29

The study of how wealth is created and distributed is:

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

Question 30

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 31

The risk premium you receive as a saver is based:

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 32

Attempts to increase financial resources are part of the ____________ component of financial planning.

A)planning
B)obtaining
C)saving
D)sharing
E)protecting

Question 33

The success of a financial plan will be determined by:

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 34

The main responsibility of The Fed is to:

A)maintain an adequate supply of money.
B)approve spending by Congress.
C)set federal income tax rates.
D)determine illegal business activities.
E)maintain a balanced budget for the federal government.

Question 35

Which of the following would increase the risk of a loan to the lender?

A)Inflation rate greater than loan rate
B)A short time to maturity
C)Consumer Price Index
D)Rule of 72
E)Inflation rate lower than loan rate

Question 36

The stages in the family and financial needs of an adult are called the:

A)financial planning process.
B)budgeting procedure.
C)personal economic cycle.
D)adult life cycle.
E)tax planning process.

Question 37

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:

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

Question 38

The problem of bankruptcy is associated with misuse of credit in the ______________ component of financial planning.

A)sharing
B)saving
C)obtaining
D)borrowing
E)protecting

Question 39

Which of the following would cause consumer prices to drop?

A)Increased consumer borrowing
B)Higher spending by consumers
C)A demand for higher wages
D)Hidden inflation
E)Increased supply by business without increased consumer demand.

Question 40

With an inflation rate of 9 percent,prices would double in about ___________ years.

A)4
B)6
C)8
D)10
E)12

Question 41

If you put $1,000 in a savings account and make no further deposits,what type of calculation would provide you with the value of the account in 20 years?

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 42

The first step of the financial planning process is to:

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

Question 43

Which type of computation would a person use to determine the current value of a desired amount in the future?

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)Compound interest

Question 44

The uncertainty associated with evaluating your alternatives is referred to as:

A)opportunity cost.
B)selection of alternatives.
C)financial goals.
D)personal values.
E)risk.

Question 45

Opportunity cost refers to:

A)money needed for major consumer purchases.
B)what a person gives up by making a choice.
C)the amount paid for taxes when a purchase is made.
D)current interest rates.
E)evaluating different alternatives for financial decisions.

Question 46

If a person deposited $50 a month for 6 years earning 8 percent,this would involve what type of computation?

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 47

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

A)Interest Rate
B)Inflation
C)Income
D)Liquidity
E)Personal

Question 48

____________ risk refers to the danger of changes in buying power during times of rising or falling prices.

A)Liquidity
B)Income
C)Personal
D)Inflation
E)Interest Rate

Question 49

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

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 50

The financial planning process concludes with efforts to:

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

Question 51

As Cynthia Tyler plans to set aside funds for her young children's college education,she is setting a(n)____________ goal.

A)intermediate
B)long-term
C)short-term
D)intangible
E)durable

Question 52

If inflation is increasing at 3 percent per year,and your salary increases at the same rate,how long will it take your salary to double?

A)30 years
B)24 years
C)18 years
D)12 years
E)6 years Rule of 72: 72/3 = 24

Question 53

.Brad Johnson has a goal of "saving $50 a month for vacation." Brad's goal lacks:

A)measurable terms.
B)a realistic perspective.
C)specific terms.
D)the type of action to be taken.
E)a time frame.

Question 54

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 55

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

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

Question 56

When prices are increasing at a rate of 6 percent,the cost of products would double in about how many years?

A)7.2 years
B)10 years
C)6 years
D)12 years
E)18 years

Question 57

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)Setting aside money for paying income tax
D)Purchasing automobile insurance
E)Using a personal computer for financial planning

Question 58

The time value of money refers to:

A)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 59

____________ goals relate to personal relationships,health,and education.

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

Question 60

Future value calculations involve:

A)discounting.
B)add-on interest.
C)compounding.
D)simple interest.
E)an annuity.

Question 61

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

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 62

Paul Carter is 43 years old,married and has three children,ages 13,10 and 5.Which influence on financial decisions does this demonstrate?

A)Adult Life Cycle
B)Economic Factors
C)Global Influences
D)Opportunity Costs
E)None of these.

Question 63

Lynn Roy's goal has been to travel around the world.She has now been traveling for six months and she has decided she is a little tired of living out of a suitcase.She has decided to go home,look for a part time job and take shorter trips to locations around the world that appeal to her.Which step in the financial planning process does this scenario most likely demonstrate?

A)Developing her financial goals
B)Identifying alternative courses of action
C)Evaluating her alternatives
D)Implementing her financial plan
E)Reviewing and revising her financial plan

Question 64

One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs.Which aspect of financial planning does this deal with?

A)Borrowing
B)Spending
C)Managing Risk
D)Investing
E)Retirement and Estate Planning

Question 65

John Gleason is interested in purchasing a 46" rear projection TV for his living room.He knows that right now the TV will cost approximately $1500.However,John is a little concerned about his job.John is a pilot for Delta Airlines and he thinks it is possible that he could be laid off in the near future.What type of risk is John worried about?

A)Inflation risk
B)Interest rate risk
C)Income risk
D)Personal risk
E)Liquidity risk

Question 66

Mary Smith is considering investing in 30 year Corporate Bonds issued by Duke Energy Company.She knows that she will earn an interest rate of 8% by purchasing these bonds.However,she is concerned because she might need to take her money out of this investment in a year,and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for.What type of risk is Mary concerned about?

A)Inflation risk
B)Interest rate risk
C)Income risk
D)Personal risk
E)Liquidity risk

Question 67

One aspect of financial planning is to use credit appropriately/wisely.Which aspect of financial planning does this deal with?

A)Borrowing
B)Spending
C)Managing Risk
D)Investing
E)Retirement and Estate Planning

Question 68

John Gleason is interested in purchasing a 46" rear projection TV for his living room.John knows that right now the TV will cost approximately $1500.John is not sure he can afford this TV right now but is worried that if he waits,the cost of the TV will rise to $1800.Which type of risk is John worried about?

A)Inflation risk
B)Interest rate risk
C)Income risk
D)Personal risk
E)Liquidity risk

Question 69

One aspect of financial planning is to make wise decisions using a plan as to what to purchase and when to purchase it.Which aspect of financial planning does this deal with?

A)Borrowing
B)Spending
C)Managing Risk
D)Investing
E)Retirement and Estate Planning

Question 70

John Dean has just moved into a new house and needs a lawn mower since he has always lived in apartments and now he has a lawn to mow.What type of goal would this be for John?

A)Consumable-product goal
B)Durable-product goal
C)Intangible goal
D)Intermediate goal
E)Long term goal

Question 71

John Gleason is interested in purchasing a 46" rear projection TV for his living room.He knows that right now the TV will cost approximately $1500.John wants to borrow the money to purchase the TV but is a little concerned because he thinks interest rates are going to fall in the future.He is worried that he might get stuck with a loan at a high interest rate.What type of risk is John worried about?

A)Inflation risk
B)Interest rate risk
C)Income risk
D)Personal risk
E)Liquidity risk

Question 72

Lynn Roy knows that if she continues to work full time,it will be difficult for her to get the time off she needs to be able to travel around the world.However,if she continues to work full time she will more easily earn the money she needs to take her trip and still have money left for her living expenses after she gets back from her trip.Which step in the financial planning process does this scenario demonstrate?

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 73

Changes in personal,social,and economic factors make it necessary to:

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

Question 74

Lynn Roy has decided to take retirement from her job and use the time she has earned to travel around the world.She has decided to start her trip around the world in Europe by train and bus and will use her savings to pay for her trip.Which step in the financial planning process does this scenario demonstrate?

A)Developing her financial goals
B)Identifying alternative courses of action
C)Evaluating her alternatives
D)Implementing her financial plan
E)Reviewing and revising her financial plan

Question 75

Lynn Roy 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?

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 76

Melanie Walsh likes to go to the movies once a week.When she is at the movies,she generally gets a large popcorn and a drink.Melanie wants to be sure that she sets aside money each week so she can continue going to the movies.What type of goal would this be for Melanie?

A)Consumable-product goal
B)Durable-product goal
C)Intangible goal
D)Intermediate goal
E)Long term goal

Question 77

Lynn Roy wants to travel around the world.Lynn Roy has several options she can pursue.She can continue to work full time to earn the money she needs for her trip.She can work part time so that she can still earn some money but have the time necessary to complete her trip.She can take full retirement so that she has all the time necessary to complete her trip.Which step in the financial planning process does this scenario demonstrate?

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 78

Lynn Roy will retire in the next year and has $675,000 in savings and investments and owns her own home that is worth $250,000.Which step in the financial planning process does this situation demonstrate?

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 79

Which of the following is usually considered a long-term financial strategy?

A)Creating a budget
B)Using savings to pay off a loan early
C)Renting an apartment to save for the purchase of a home
D)Investing in a mutual fund to accumulate retirement funds
E)Purchasing auto insurance to cover the needs of dependents

Question 80

One aspect of financial planning is to buy stocks,bonds and mutual funds with the potential for long term growth.Which aspect of financial planning does this deal with?

A)Borrowing
B)Spending
C)Managing Risk
D)Investing
E)Retirement and Estate Planning