Question 1

Your goal is to pay down your student loan in 3 years. The balance today is $9,434. If you are charged a rate of 4%, compounded monthly, what will be your monthly, end-of-period payment?

Accepted Answer

We can use the formula for monthly loan payments:

P = (r(PV))/(1-(1+r)^-n)

where:
P = monthly payment
r = monthly interest rate = 4%/12 = 0.003333
PV = present value of loan = $9,434
n = number of periods = 3 years x 12 months/year = 36

Plugging in the values, we get:

P = (0.003333(9434))/(1-(1+0.003333)^-36) = $279.39

Rounding to the nearest dollar, we get a monthly payment of $279, which is closest to choice C.

Question 2

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

Accepted Answer

The answer of Developing financial goals is the first step...

Question 3

An individual invests $5,000 at a rate of 5% per annum. What will be its value in 10 years' time?

Accepted Answer

We can use the formula: 
A = P(1+r/n)^(nt)
where A is the amount in the end, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the time period in years.

In this case, P = $5,000, r = 5% = 0.05, n = 1 (since the interest is compounded annually), and t = 10 years. Substituting these values in the formula gives:

A = $5,000(1+0.05/1)^(1*10) = $8,144.47

So, the best choice is C, which is closest to this value.

Question 4

Your goal is to accumulate in 4 years $5,000. If you can earn a rate of 4%, compounded monthly, what will be your end of month monthly payment need to be to reach this goal?

Accepted Answer

The answer of Your goal is to accumulate in 4...

Question 5

The major function of a financial plan is to:

Accepted Answer

The major function of a financial plan is to achieve financial goals. A financial plan lays out a roadmap for an individual's financial future and helps them identify and prioritize their goals. This involves creating a budget, saving for short- and long-term goals, investing wisely, and managing debt. While reducing taxes, increasing savings, improving credit rating, and obtaining adequate insurance protection are all important elements of a financial plan, they are not the primary function.

Question 6

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

Accepted Answer

Investing in a growth mutual fund to accumulate retirement funds is usually considered a long-term financial strategy as it involves putting money into a fund that has the potential to grow significantly over time, typically with the goal of using that money for retirement income. The other options may involve financial planning over a short to medium-term, but not necessarily long-term.

Question 7

The second step of the financial planning process is to

Accepted Answer

The second step of the financial planning process is to determine your current personal and financial situation. This includes assessing your income, expenses, assets, debts, and other financial factors. Only after understanding your current situation can you create effective financial goals and develop a plan of action.

Question 8

Assume the following future values will be received at the end of each year. What is the interest rate if the future value of these amounts at the end of year 3 is equal to $2,006? Yr. 1 = $400; Yr. 2 = $500; Yr. 3 = $1,000

Accepted Answer

The answer of Assume the following future values will be...

Question 9

Anne has a goal of "saving some money month for vacation next summer." Anne's goal lacks

Accepted Answer

The answer of Anne has a goal of "saving some...

Question 10

Time value of money calculations consider:

Accepted Answer

All of the above factors - present value, interest rate, payment, and time period - are considered in time value of money calculations.

Question 11

You wish to accumulate $15,000 within five years. How much would you have to save each year for five years to attain your goal? Assume an annual interest rate of 4%. Savings occur at the end of each year.

Accepted Answer

This is a present value of an annuity problem. We need to find the annual payment required to accumulate a future value of $15,000 in five years with an annual interest rate of 4%. Using the present value of an annuity formula, we get:

PV = PMT x [(1 - (1 + r)^-n) / r]
$15,000 = PMT x [(1 - (1 + 0.04)^-5) / 0.04]
$15,000 = PMT x 4.4502

Therefore, PMT (the annual payment) = $15,000 / 4.4502 = $3,368.53

However, the question asks for the annual savings, which occur at the end of each year. So we need to adjust our answer by subtracting the interest earned on the savings in the first year. The interest earned would be:

Interest = $3,368.53 x 0.04 = $134.74

So the annual savings required would be:

Annual Savings = $3,368.53 - $134.74 = $2,769.79

Rounding this to the nearest dollar gives us an answer of $2,769, which is option B.

Question 12

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

Accepted Answer

Intermediate goals are short-term goals that can be achieved within a year or so, before moving on to achieving long-term goals.

Question 13

The financial planning process is complete once you implement your financial plan.

Accepted Answer

The financial planning process is not complete once you implement your financial plan. It is an ongoing process that requires regular review and adjustment to ensure that it remains relevant and effective. Changes in your life circumstances and financial goals may necessitate updates to your plan over time.

Question 14

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

Accepted Answer

Dani's desire to travel and pay off her loan are specific financial goals she wants to achieve, indicating she is at the goal-setting stage of the financial planning process.

Question 15

Financial planning does not have specific techniques that will be effective for every individual and household.

Accepted Answer

Financial planning is a process that involves developing customized strategies and solutions based on an individual's unique financial situation, goals, and priorities. There is no one-size-fits-all approach to financial planning, and what works well for one person may not be appropriate for another. Therefore, financial planning does not have specific techniques or strategies that are universally effective for all individuals and households.

Question 16

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

Accepted Answer

Analyzing your current financial position is a crucial part of the first stage of the financial planning process. This involves assessing your income, expenses, assets, liabilities, and net worth to understand your financial standing and identify areas for improvement.

Question 17

Assume your friend will pay you $200 for each of the next two years and $400 in years 3 and these amounts will be paid at year end. Assume the interest rate is 10% for the first two years and 12% for the next two (years 3 and 4). What is your friend's promise worth in today's dollars? (Round your answer)

Accepted Answer

The answer of Assume your friend will pay you $200...

Question 18

Your goal is to pay down your student loan in 3 years. The balance today is $9,434. If you are charged a rate of 9%, compounded monthly, what will be your monthly, end-of-period payment?

Accepted Answer

The answer of Your goal is to pay down your...

Question 19

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

Accepted Answer

Risks associated with most financial decisions cannot be accurately measured as they involve uncertainties and factors beyond control. It is important to evaluate and manage these risks to minimize negative consequences.

Question 20

Decreased consumer spending will usually cause:

Accepted Answer

Decreased consumer spending will lead to lower demand for goods and services, which in turn will lead to a decrease in production and employment levels. Businesses may have to lay off workers or reduce their hours as a result of lower sales.

Quiz 1: Personal Financial Planning: An Introduction