Deck 1: Overview of a Financial Plan

Question 1

Opportunity cost refers to

A) money needed for major consumer purchases.
B) what you give up or forego as a result of making a decision.
C) the amount paid for taxes when a purchase is made.
D) evaluating different alternatives for financial decisions.

Answer 1

what you give up or forego as a result of making a decision.

Question 2

A thorough understanding of this personal finance book qualifies you to become a financial adviser.

Answer 2

False

Question 3

A good understanding of the financial planning process will allow you to make informed decisions without relying on the advice of financial advisers.

Answer 3

False

Question 4

"Big spenders" focus their budgeting decisions on

A) reducing expenses.
B) increasing income.
C) spending most of their income.
D) saving most of their income.

Question 5

Which of the following is not an asset?

A) Your house that you rent
B) Your car that you financed
C) Your coin collection given to you by your grandfather
D) Your textbooks

Question 6

A personal financial plan specifies financial goals and describes

A) saving, investing, and asset valuation.
B) spending, saving, and credit card financing.
C) spending, financing, and investment plans.
D) saving and spending only.

Question 7

The value of what you own minus the value of what you owe is called your net worth.

Question 8

The simple objective of financial planning is to make the best use of your resources to achieve your financial goals.

Question 9

An example of an opportunity cost is the wages that you could have earned but did not because you were in class.

Question 10

In the United States the level of savings is about

A) 50% of income earned.
B) 25% of income earned.
C) 4.5% of income earned.
D) less than 1% of income earned.

Question 11

Which item is not one of the components of a personal financial plan?

A) Setting aside money for season tickets to your favorite football team
B) Investing your money
C) Planning your retirement
D) Budgeting

Question 12

An understanding of personal finance is not necessary to judge the quality of advice that a financial adviser may give.

Question 13

Most Americans will never be able to understand and develop a personal financial plan.

Question 14

Personal finance does not include the process of planning your

A) spending.
B) financing.
C) investing.
D) spirituality.

Question 15

The first step in budgeting is to evaluate your current financial position by looking at just your income and expenses.

Question 16

"Big savers" focus their budget decisions on

A) reducing expenses.
B) increasing income.
C) spending most of their income.
D) saving most of their income.

Question 17

Which of the following is an example of an opportunity cost?

A) Renting an apartment near school
B) Taking a class instead of working at your part-time job
C) Setting aside money for paying income tax
D) Purchasing automobile insurance

Question 18

Various government agencies have conducted surveys that show most people have a good understanding of personal finance.

Question 19

All of the following are true with regard to the demand for financial advisers except

A) many people lack an understanding of personal finance.
B) many people prefer to rely on advisers rather than making their own decision.
C) many people are just not interested in making their own financial decisions.
D) the law requires that you use advisers before making investments.

Question 20

Which of the following items is not a liability?

A) The balance due on your credit card
B) Your college loans
C) The wages you give up to take a class
D) An IOU to your roommate

Question 21

Which of the following is an example of an opportunity cost?

A) Depositing money into a savings account so you will be able to pay cash for holiday gifts
B) Buying a car which depletes your savings
C) Giving up going to a movie in order to study for your finance exam
D) Purchasing a new computer

Question 22

Your financial plan should include a plan for protecting your assets and income through insurance coverage.

Question 23

Retirement planning should begin

A) as early as possible in order that you accumulate sufficient funds for retirement.
B) as soon as you start working full time.
C) a few years before you plan on retiring.
D) you do not need to plan since social security and your firm's pension will be sufficient.

Question 24

The wages that you forego when you leave work early to attend class are an example of a(n)________.

Question 25

A worker making $20 per hour decides to take a day of unpaid leave from work to attend a graduation ceremony. The worker ordinarily works and 8-hour day and is subjected to a total tax rate of 20%.What is the worker's total opportunity cost from the day of unpaid leave?

A) $8.00
B) $128.00
C) $112.00
D) $160.00

Question 26

Effective estate planning will ensure that your wealth is distributed according to your wishes,but will do nothing to reduce the potential taxes your estate is subject to.

Question 27

A complete financial plan includes all of the following except

A) managing liquidity.
B) budgeting and tax planning.
C) investing money.
D) spiritual training.

Question 28

________ is the process of forecasting future expenses and savings.

A) Budgeting
B) Planning
C) Predicting
D) Fortune-telling

Question 29

Credit should be used only when necessary,since it usually involves borrowed funds that you will need to pay back with interest.

Question 30

Which of the following is not a financing decision?

A) Should you buy Apple stock with savings
B) Should you lease a car
C) Should you take a loan and buy a car
D) Should you take a 15 or 30 year mortgage to buy a house

Question 31

If you do not have access to money to cover cash needs,you may have insufficient liquidity.

Question 32

Josh has decided to take a course at the local community college that could help him get a promotion at work.The course begins at 5 p.m.and goes until 9 p.m.on Monday nights.Josh normally works until 5 p.m.each day,but because of the drive time to the community college,he will need to leave work at 3 p.m.on class days.Josh currently earns $18.50 per hour.His employer contributes 10% of Josh's gross earnings to a 401(k)retirement plan.If the class meets 16 times,what is Josh's total opportunity cost for the class?

A) $592.00
B) $800.00
C) $651.20
D) None

Question 33

A measure of your wealth is

A) the highest level of education you've attained.
B) the amount of your annual income.
C) the value of what you own minus the value of what you owe.
D) your tax bracket.

Question 34

People do not need to determine how much money to set aside for retirement and how those funds should be invested until they near their retirement age.

Question 35

Which of these statements is true with regards to the 2008-2009 financial crisis?

A) More than half of the people in the United States lost their jobs.
B) The values of many homes were cut in half or more.
C) The values of most investments declined by no more than 10%.
D) Having a financial plan is of no help when economic conditions are as weak as they were during the crisis.

Question 36

Liquidity cannot be enhanced using sound money and credit management.

Question 37

One of the considerations that determines your investment choices is the level of risk you are willing to tolerate.

Question 38

Amanda has cash of $100,a car worth $5,000,and books worth $200.Her liabilities include a car loan of $2,000 and a credit card balance of $100.What is the total of her assets,liabilities,and net worth?

Question 39

Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use.

Question 40

A complete financial plan consists of budgeting,taxes,financing,and investing.

Question 41

________ management involves decisions regarding how much credit you need to support spending and which sources of credit to use.

A) Investment
B) Money
C) Credit
D) Liquidity

Question 42

What is the core purpose of buying insurance?

A) Protect your wealth and assets
B) Make sure you make money on any claim
C) Insurance is an expense a careful investor needs to minimize
D) Make sure you leave an estate when you are gone

Question 43

Retirement planning should take place

A) when you retire.
B) shortly after you retire.
C) well before you retire.
D) at any time.

Question 44

Most investments are subject to ________,which is the uncertainty surrounding their potential return.

Question 45

Potential investments include all of the following instruments except

A) stocks and bonds.
B) mutual funds.
C) real estate.
D) lottery tickets.

Question 46

________ management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short-term investment instruments.

A) Investment
B) Money
C) Credit
D) Liquidity

Question 47

Which of the following would not be considered an investment?

A) A new television set
B) An art collection
C) A savings account
D) A mutual fund of stocks and bonds

Question 48

Your ability to access funds to cover any short-term cash deficiencies is your ________.

Question 49

The act of determining how wealth will be distributed before or upon death is

A) estate planning.
B) retirement planning.
C) not needed for most people.
D) liquidity planning.

Question 50

________ is the uncertainty surrounding the potential return on an investment.

Question 51

From a financial standpoint when should a person start retirement planning and saving?

A) When he or she first starts receiving a salary
B) At 45-50 years of age
C) At 50-55 years of age
D) At 55-60 years of age

Question 52

Which of the following is a credit management decision?

A) Purchasing a used car with cash
B) Investing your savings in the stock market
C) Obtaining a student loan to attend college
D) Putting money into your retirement account

Question 53

________ involves having access to funds to cover any short-term cash deficiencies.

A) Investment
B) Money
C) Liquidity
D) Risk

Question 54

A plan for ________ is needed to determine how much you could afford to borrow,the length of the loan,and how to select a loan that charges competitive interest rates.

A) buying
B) financing
C) spending
D) saving

Question 55

Which of the following is an example of money management?

A) Putting your money in a savings account at your bank
B) Shopping around for the credit card with the best interest rate
C) Deciding to delay buying a new car until you can pay cash
D) Paying off a loan early to reduce the interest charges

Question 56

Estate planning

A) protects your wealth against unnecessary taxes.
B) shelters your wealth against all taxes.
C) ensures that your wealth is distributed in the manner that the court determines.
D) involves saving to purchase a large country estate.

Question 57

During his ________ your Uncle Harvey decides to cut you out of his will.

Question 58

Which of the following is not a way that insurance is designed to protect your wealth?

A) Protecting the assets that you own
B) Limiting your exposure to potential liabilities
C) Protecting your income
D) Protecting your investments from downturns in the stock market

Question 59

Which of the following does not protect your assets and/or income?

A) Money insurance
B) Disability insurance
C) Automobile insurance
D) Life and health insurance

Question 60

List the six components of a financial plan.

Question 61

Which of the following is not a decision involved in managing your financing?

A) Whether to obtain a 3 year versus 4 year loan on a new car
B) Whether to obtain a 15 year versus 30 year loan on a new home
C) Whether to pay off an existing loan
D) Whether to invest income in a savings account or in a stock

Question 62

Your decision about one component of your financial plan can affect all other components.Which statement is true?

A) The amount of insurance you choose to carry has no effect on your investing decisions.
B) There will never be any trade-offs to consider when making decisions about your financial plan.
C) If you make poor investment decisions, you may have to work longer than planned.
D) You should contribute all of your extra money to your retirement account even if it means you don't have money available for products and services today.

Question 63

Goals should be set as high as possible regardless of reality because they may eventually be obtainable.

Question 64

The major source of cash outflow for most people is the income they receive from employers.

Question 65

A budget does not

A) require thinking and planning.
B) require an evaluation of your current financial position.
C) help you account for all your income and expenses.
D) require the preparation of a will.

Question 66

Jessie has $4,000 in a bank account,$2,800 in a 401(k)plan at work,a car with a current value of $28,000,and a house that she purchased for $92,000 that has a current value of $118,000.The current balance of her home mortgage is $81,000,she has one credit card with a $3,000 balance,and a school loan with a balance of $6,000.What is Jessie's current net worth?

A) $62,800
B) $46,800
C) ($242,800)
D) ($62,800)

Question 67

If your income exceeds the amount you spend,you should ________ your investments or ________ loans.

A) reduce; repay existing
B) reduce; obtain more
C) increase; repay existing
D) increase; obtain more

Question 68

When estimating expenses for a budget,

A) last month's and last year's expenses are not a good starting point.
B) many of the same expenses do not occur each month.
C) large unusual expenses such as car or hospital bills should be included.
D) estimating your future assets is a good starting point.

Question 69

The income in your budget is not affected by

A) your education.
B) your career decisions.
C) the tax laws.
D) the standard of living you experienced as a child.

Question 70

Jakob received a $1,000 a year raise in January,sold stocks in March for $6,000 that were originally purchased for $4,000,and in July had a $100 monthly increase in mortgage payments on his adjustable rate mortgage.The increased mortgage payment started in July and was in effect for the remainder of the year.What was the total impact on Jakob's cash flow for the year?

A) $1,000
B) $5,400
C) $6,400
D) $7,600

Question 71

To increase your savings,

A) income must be increased.
B) expenses must be increased.
C) income must be decreased.
D) net worth must be decreased.

Question 72

Your financial position is highly influenced by all of the following except

A) the amount of education you pursue.
B) the current pay level you receive.
C) the current economy.
D) the bonus check your best friend just received.

Question 73

Budgeting helps set goals by estimating ________ on a monthly basis to determine how much to save and spend.

A) assets and income
B) liabilities and expenses
C) income and expenses
D) net worth and income

Question 74

Which of the following is not a decision that you would probably encounter in managing your budget?

A) What expenses you should anticipate
B) How much money you should attempt to save each month
C) How you will allocate your estate among your heirs
D) How long you will take to pay off a specific loan

Question 75

Cash flows are affected by financial planning decisions.Which of the following is correct?

A) Car payments you make are cash outflows
B) Investments you make in stock are cash inflows
C) Your routine monthly expenses are cash inflows
D) Your income is a cash outflow

Question 76

Which of the following would not be a factor in evaluating your current financial position?

A) Income
B) Expenses
C) Possible lottery winnings
D) Assets

Question 77

Cash flows are affected by financial planning decisions.Which of the following is not correct?

A) Insurance payments are a cash outflow
B) Investing in stock is a cash outflow
C) Buying on time results in a cash inflow
D) Income is a cash inflow

Question 78

Your net worth will not be increased by which of the following actions?

A) Increasing your savings from 10% to 15% of your earnings
B) Receiving a $100 birthday present from your grandmother
C) Buying a new home entertainment system and putting the entire amount on your credit card
D) Receiving an inheritance

Question 79

Which of the following is not a decision involved in managing your liquidity?

A) Deciding how much money to keep in savings
B) Choosing between credit cards
C) Determining how much money to save versus how much to spend
D) Building and maintaining a monthly/yearly budget with allocations to expenses and investments

Question 80

The first step in developing your financial plan is

A) establish your financial goals.
B) pay off all your credit cards.
C) buy a cool car then begin saving money.
D) get a good job.