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

Question 1

Risks associated with most financial decisions are fairly easy to measure.

Answer 1

False

Question 2

Most decisions have only a few alternatives from which to choose.

Answer 2

False

Question 3

Present value is also referred to as compounding.

Answer 3

False

Question 4

Developing financial goals is the first step in the financial planning process.

Question 5

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

Question 6

Analyzing your current financial position is a part of the first stage of the financial planning process.

Question 7

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

Question 8

Financial planning has specific techniques that will be effective for every individual and household.

Question 9

The main goal of personal financial planning is:

A)saving and investing for future needs.
B)reducing a person's tax liability.
C)achieving personal economic satisfaction.
D)spending to achieve financial objectives.
E)saving,spending,and borrowing based on current needs.

Question 10

Lenders benefit more than borrowers in times of high inflation.

Question 11

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

Question 12

Inflation reduces the buying power of money.

Question 13

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

Question 14

A decrease in the demand for a product or service may result in a decrease in wages for people producing that item.

Question 15

Higher inflation usually results in lower interest rates.

Question 16

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

Question 17

A financial plan is another name for a budget.

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

Who is most likely to benefit from inflation?

A)retired people
B)lenders
C)borrowers
D)low-income consumers
E)government

Question 23

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 24

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

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

Question 25

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 26

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

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

Question 27

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

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

Question 28

Which of the following would cause prices to drop?

A)increased taxes on business
B)higher levels of demand by consumers
C)a demand for higher wages
D)a reduction in the money supply
E)increased production by business

Question 29

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 30

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 31

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 32

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.
E)establishing a line of credit.

Question 33

Higher prices are likely to result from:

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

Question 34

The stages that an individual goes through based on age,financial needs,and family situation is called the:

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

Question 35

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 36

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

A)rising consumer prices
B)a short time to maturity
C)lower consumer prices
D)constant interest rates
E)a good credit rating

Question 37

The main economic influence that determines prices is:

A)the stock market.
B)interest rates.
C)employment.
D)government spending.
E)supply and demand.

Question 38

The ability to convert financial resources into usable cash with ease is referred to as:

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

Question 39

The risk premium you receive as a saver is based in part on:

A)your credit rating.
B)the amount of money you are borrowing.
C)the uncertainty associated with getting your money back.
D)the expected rate of inflation.
E)C & D abovE.

Question 40

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 41

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

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

Question 42

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 43

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 44

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 45

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 46

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 47

____________ risk refers to the danger of lost buying power during times of rising prices.

A)Trade-off
B)Economic
C)Personal
D)Inflation
E)Interest-rate

Question 48

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.
E)changing demographic trends in our society.

Question 49

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 50

As Jean 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 51

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

A)borrowing
B)risk Management
C)spending
D)retirement and Estate Planning
E)obtaining

Question 52

The success of a financial plan will be determined by:

A)the amount of income available.
B)the stage of the adult life cycle.
C)a person's tax status.
D)how resources are useD.
E)current economic conditions.

Question 53

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 54

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

Question 55

If you put $1,000 in a saving 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 56

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 57

Future value calculations involve:

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

Question 58

Which type of computation would a person use to determine current value of a desired amount for 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)present value of a series of deposits

Question 59

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 60

The first step of the financial planning process is to:

A)develop financial goals.
B)implement the financial plan.
C)analyze your current personal and financial situation.
D)evaluate and revise your actions.
E)create a financial plan of action.

Question 61

Melanie Walsh likes to go to the movies once a week.When she is at the movies,she generally gets 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-products goal
B)Durable-products goal
C)Intangible goal
D)Intermediate goal
E)Long term goal

Question 62

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 63

The financial planning process concludes with efforts to:

A)develop financial goals.
B)create a financial plan of action.
C)analyze your current personal and financial situation.
D)review the financial plan.
E)review and revise your actions.

Question 64

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-products goal
B)Durable-products goal
C)Intangible goal
D)Intermediate goal
E)Long term goal

Question 65

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 66

Mary Sheets 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

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 68

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

A)interest-rate
B)inflation
C)economic
D)trade-off
E)personal

Question 69

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

A)develop financial goals.
B)evaluate and revise your actions.
C)analyze your current personal and financial situation.
D)implement the financial plan.
E)create a financial plan of action.

Question 70

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 71

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 72

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

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

Question 73

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 growth mutual fund to accumulate retirement funds
E)purchasing auto insurance to cover the needs of dependents

Question 74

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 75

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 76

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 77

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 78

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 79

One aspect of financial planning is to make wise decisions 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 80

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