Deck 1: Personal Financial Planning in Action

Question 1

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

Answer 1

False

Question 2

Inflation is most harmful to people with incomes expected to increase.

Answer 2

False

Question 3

A financial plan is an informal report that analyzes past financial decisions.

Answer 3

False

Question 4

The financial activities for a young, single person will probably be the same as those for an older couple with no dependent children at home.

Question 5

Inflation is a rise in the general level of prices and it, reduces the buying power of the dollar.

Question 6

Personal financial planning is the process of managing your money to achieve personal economic satisfaction.

Question 7

Purchasing an appliance is an example of a consumable-product goal.

Question 8

Short-term goals are usually achieved within the next year or so.

Question 9

Opportunity costs refer to money already spent.

Question 10

Planned spending through budgeting is part of the "spending" component of financial planning activities.

Question 11

Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.

Question 12

Purchasing a car is an example of a durable-product goal.

Question 13

Financial Plans are only created by financial planners.

Question 14

Personal opportunity costs refer to resources, such as time, health, and energy, that are given up when a choice is made.

Question 15

Risks associated with many financial decisions are easy to identify and evaluate.

Question 16

Interest earned is calculated by multiplying the principal times the time value of money.

Question 17

When prices are increasing at a rate of 4 percent, the cost of products would double in about 18 years.

Question 18

As borrowing by consumers and businesses increases, interest rates are likely to decrease.

Question 19

A financial plan can only be created using a money management software package.

Question 20

The life situation of a household includes a combination of personal factors such as age, income, household size, and personal beliefs.

Question 21

Jim Johnson was laid off from his job two months ago. He just received an offer for a position that pays 3/4 the salary of his old job. Why should he set up a financial plan?

A) To increase the effectiveness of obtaining, using, and protecting his financial resources.
B) To decrease control of his financial affairs regarding debt.
C) To accept the loss of freedom from financial worries due to his new position.
D) To learn how to manage depending more on others.
E) To find out why he was laid off.

Question 22

The actual cost of living increase for a household will be:

A) Greater than the inflation rate as reported by the CPI since the index excludes the product or service with the highest inflation rate for the past 12 months
B) Lower than the inflation rate as reported by the CPI since the index excludes the product or service with the lowest inflation rate for the past 12 months
C) Equal to the inflation rate as reported by the CPI since it includes all products and services whether or not the prices have changed in the past 12 months
D) Either greater than or less than the inflation rate as reported by the CPI depending on the household's cost of necessities purchased
E) Zero since the CPI does not measure consumer price changes

Question 23

The stages in the family situation and financial needs of an adult is called the

A) Financial planning process
B) Budgeting procedure
C) Personal economic cycle
D) Adult life cycle
E) Tax planning process

Question 24

Increased consumer saving and investing is likely to be accompanied by

A) Lower union wages
B) Higher interest rates
C) Lower production costs
D) Lower interest rates
E) Higher inflation

Question 25

The Rule of 72 is:

A) A tool to determine the number of years until retirement for an employee
B) Used to estimate how fast prices will double using a given annual inflation rate
C) The legal code for requiring companies to provide a match on retirement savings
D) Used to calculate interest rates for savings
E) The number of steps required to complete a financial plan

Question 26

Attempts to increase income through employment are part of the _____________ component of financial planning.

A) Obtaining
B) Planning
C) Saving
D) Borrowing
E) Spending

Question 27

There are only 3 possible courses of action when developing alternatives for decision making.

Question 28

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 29

The major function of personal financial planning is to

A) Reduce taxes.
B) Increase savings.
C) Achieve personal economic satisfaction.
D) Improve your credit rating.
E) Obtain adequate insurance protection.

Question 30

Who is less likely to be harmed by inflation?

A) Retired people
B) Lenders
C) Borrowers
D) Fixed income consumers
E) Financial regulators

Question 31

$500 on deposit at 6% for 6 months would earn $20.

Question 32

The consumer price index measures:

A) The prices of goods and services in the United States
B) The prices of goods and services in Bolivia
C) The average change in prices of goods and services of urban consumers
D) The change in prices of goods and services around the world
E) None of the above

Question 33

The 'borrowing' component in a financial plan relates to

A) Acquiring adequate insurance coverage
B) Investing for long-term growth
C) Setting up a budget
D) Obtaining financial resources from employment, investments or ownership
E) Maintaining control over credit-buying habits

Question 34

An advantage of effective personal financial planning is:

A) The use of low-interest savings
B) Increased impulse spending
C) Increased control of financial affairs
D) More credit card debt
E) Less monitoring of investments

Question 35

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

A) Sharing
B) Savings
C) Obtaining
D) Borrowing
E) Protecting

Question 36

Which of the following would increase the interest rate for a loan?

A) Poor credit rating
B) Higher down payment
C) Expected lower inflation
D) Lower consumer prices
E) Short time to maturity

Question 37

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?

A) General interest rates are very low
B) His credit rating is poor which results in a higher interest rate
C) He already has a student loan outstanding
D) Recent graduates are not allowed to have more than $25,000 in debt outstanding
E) Interest rates must be tied to the CPI

Question 38

The saving component of financial planning focuses on long-term security and includes:

A) A regular savings plan for emergencies
B) A current will
C) Bankruptcy counseling
D) A realistic budget for your current financial situation
E) Minimizing transportation expenses through careful planning

Question 39

There are only 3 methods of calculating time value of money.

Question 40

A savor or an investor should expect to receive a risk premium for

A) Higher interest rates
B) Lower consumer prices
C) Higher uncertainty about getting his/her money back
D) Reduced credit ratings
E) Expected lower inflation

Question 41

Present value computations are also referred to as

A) Discounting.
B) Future value.
C) Compounding.
D) Simple interest.
E) An annuity.

Question 42

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

A) Renting an apartment near school
B) Saving money instead of spending it today
C) Organizing income tax records
D) Purchasing automobile insurance
E) Using a personal computer for financial planning

Question 43

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

A) Less
B) The same as
C) More
D) Either less or the same as
E) Either the same as or more

Question 44

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 45

_________ goals relate to infrequently purchased, expensive items.

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

Question 46

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

A) Put money into an investment fund.
B) Reduce credit card debt.
C) Save funds for an annual vacation.
D) Save $100 a month to create a $2,400 emergency fund in 2 years.
E) Spend less each month.

Question 47

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 earned.
E) Changing demographic trends in our society.

Question 48

To develop financial goals, one should

A) Set several general goals for the short-term
B) Only set long-term goals after short-term goals have been accomplished
C) Focus on intermediate goals first
D) Identify specific, realistic goals that are measurable along with a time frame and an action plan
E) Not worry about whether or not the goals can be achieved based on one's income and life situation

Question 49

Which of the following is correct?

A) A car purchase is a consumable-product goal
B) Entertainment is a durable-product goal
C) Appliances and sporting equipment are intangible-purchase goals
D) Leisure and education are durable-product goals
E) Food and clothing are consumable-product goals

Question 50

To calculate the time value of money, we need to consider all of the following except the

A) Amount of the savings.
B) Annual interest rate.
C) Length of time the money is on deposit.
D) Type of investment.
E) Principal.

Question 51

Which of the following intermediate goals is stated most clearly using the SMART approach?

A) Buy a car for less than $15,000 within 6 months
B) Retire in 10 years at age 65 with $2,000,000 in my 401(k) account
C) Purchase a house with a mortgage no greater than $150,000 within 5 years
D) Set up an emergency fund
E) Invest $50 per month for the next 12 years for my nephew's college fund

Question 52

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) __________ goal.

A) Short-term
B) Intermediate
C) Long-term
D) Intangible
E) Durable

Question 53

The goal of purchasing a long-term care insurance policy would be most appropriate for

A)A young couple without children.
B)A single parent with a preschool daughter.
C)An unmarried couple without children.
D)An older single person with children.
E)A young single individual.

Question 54

Susan Smith has a goal of "saving $25 per month for a TV". Considering the SMART approach, Susan's goal lacks

A) Measurable terms
B) A realistic perspective
C) An action-orientation
D) A specific objective
E) A time frame

Question 55

Opportunity cost refers to

A) Money needed for major consumer purchases.
B) The trade-off of a decision.
C) The amount paid for taxes when a purchase is made.
D) Current interest rates.
E) Evaluating different alternatives for financial decisions.

Question 56

Many Americans have money problems because of

A) Poor planning and weak money management habits
B) Too many clearly defined goals
C) Proper use of credit
D) Not enough advertising to make effective decisions
E) Controlled spending

Question 57

Robert Brown is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finds a substitute for his shift so he can attend the concert, what kind of cost is he incurring?

A) Personal opportunity cost relating to health
B) Personal opportunity cost relating to time
C) Personal opportunity cost relating to abilities
D) Personal opportunity cost relating to knowledge
E) Unexpected personal opportunity cost

Question 58

Which of the following short-term goals is stated most clearly using the SMART approach?

A) Buy a car for less than $15,000 within 6 months
B) Retire in 10 years at age 65 with $2,000,000 in my 401(k) account
C) Purchase a house with a mortgage no greater than $150,000 within 5 years
D) Set up an emergency fund
E) Invest $50 per month for the next 12 years for my nephew's college fund

Question 59

Which of the following long-term goals is stated most clearly using the SMART approach?

A) Buy a car for less than $15,000 within 6 months
B) Retire in 10 years at age 65
C) Purchase a house with a mortgage no greater than $150,000 within 5 years
D) Set up an emergency fund
E) Invest $50 per month for the next 12 years for my nephew's college fund

Question 60

Future value computations are often referred to as

A) Discounting.
B) Present value.
C) Compounding.
D) Simple interest.
E) An annuity.

Question 61

Changes in the cost of money is referred to as ____________ risk.

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

Question 62

Changes in personal, social, and economic factors may require you to

A) Review and revise your financial plan more frequently.
B) Implement your financial action plan.
C) Develop your financial goals.
D) Determine current financial situation.
E) Create your financial plan of action.

Question 63

The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk.

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

Question 64

Making financial decisions related to income involves all of the following except

A) Spending
B) Saving
C) Sharing
D) Taking
E) All of these are financial decisions

Question 65

Every decision involves uncertainty, which is referred to as

A) Consequences of choices.
B) Alternative courses of action.
C) Financial goals.
D) Personal values.
E) Evaluating risk.

Question 66

The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.

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

Question 67

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) Evaluate and revise the financial plan..
E) Create a financial action plan.

Question 68

If inflation is expected to be 8 percent, how long will it take for prices to double?

A) 6 years
B) 7 years
C) 9 years
D) 12 years
E) 18 years

Question 69

Using the services of financial institutions or financial specialists (such as insurance agents or investment advisers) to seek relevant information is done in which step in the financial planning process?

A) Develop your financial goals.
B) Review and revise your financial plan.
C) Determine your current financial situation.
D) Evaluate your alternatives.
E) Create your financial plan of action.

Question 70

Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 71

Rhonda Miller wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 72

Paul Davis wants to deposit money today for a vacation that he plans to take to Asia after he graduates from Graduate School. Which formula should he use to determine the amount of money he will have available for his vacation?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 73

Place the following steps for a personal financial plan in the proper order:
1. Review and revise the financial plan
2. Identify alternative courses of action
3. Create and implement your financial action plan
4. Determine your current financial situation
5. Evaluate alternatives
6. Develop your financial goals

A) 6, 1, 2, 5, 3, 4
B) 4, 2, 6, 5, 3, 1
C) 3, 6, 4, 2, 5, 1
D) 4, 6, 2, 5, 3, 1
E) 6, 2, 5, 4, 1, 3

Question 74

The loss of a job or encountering an illness results in ____________ risk.

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

Question 75

If a $10,000 investment earns a 4 % annual return, what should its value be after one year?

A) $100
B) $400
C) $4,000
D) $10,000
E) $10,400

Question 76

The difficulty of converting savings and investments to cash is referred to as ____________ risk.

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

Question 77

If a $10,000 investment earns interest of $500 in one year, what is its rate of return?

A) .5 percent
B) 10 percent
C) 50 percent
D) 75 percent
E) 100 percent

Question 78

Jennifer Rodriguez plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school, and she wants to save money each month to reach her goal. What type of computation should she use?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity

Question 79

The step in the personal financial planning process that follows "Create and implement your financial action plan" is

A) Review and revise the financial plan
B) Identify alternative courses of action
C) Determine current financial situation
D) Evaluate alternatives
E) Develop your financial goals

Question 80

Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?

A) Present value of a single amount
B) Future value of a single amount
C) Simple interest
D) Present value of an annuity
E) Future value of an annuity