Deck 21: Integrating the Components of a Financial Plan

Question 1

Loans restrict your spending or saving in future months and,therefore,can prevent you from achieving financial goals.

Answer 1

True

Question 2

There is a cost/benefit relationship for insurance protection which means you could be under-insured or over-insured.

Answer 2

True

Question 3

A budget is not intended to help you determine

A)how much money you will have at the end of each month.
B)a plan for spending all of your income on current needs.
C)how much you can allocate for the future.
D)how to prevent excessive spending to achieve financial goals.

Answer 3

a plan for spending all of your income on current needs.

Question 4

Budgeting decisions involve a tradeoff between spending today and allocating funds for the future.

Question 5

Stocks of smaller firms are more volatile than those of larger firms and,therefore,are not as liquid.

Question 6

Some retirement plans,such as Roth IRAs,are more liquid than other plans.

Question 7

Personal financing is good because it allows you to make purchases now without the full amount of cash on hand.

Question 8

To monitor your financial plan over time,it is important to store finance-related documents in a safe and accessible place.

Question 9

The idea of having adequate insurance is to protect against events that could reduce your income or wealth.

Question 10

You may want to make additional loan payments if the interest rate you are paying is higher than you could obtain from an investment.

Question 11

The more you spend,the less money you will have available for liquidity purposes or to make investments or to save for retirement.

Question 12

Careful budgeting lets you spend more to achieve your short-term financial goals.

Question 13

Budgeting allows you to forecast how much money you will have at the end of each month so that you can determine how much you will be able to invest in assets.

Question 14

You should maintain just enough money in liquid assets to satisfy your liquidity needs,then you can earn a higher return on your other assets.

Question 15

You should make investments only after you have sufficient liquidity and sufficient insurance to protect your existing assets.

Question 16

One disadvantage of investing in retirement accounts is that these funds are typically not very liquid.

Question 17

Investing in stocks of large,well-known firms may enhance your liquidity,but typically these investments do not generate as high a return as stocks of smaller firms.

Question 18

If you have enough liquidity,you should either obtain short-term financing or sell assets.

Question 19

It is not possible to have too much insurance coverage.

Question 20

Liquid assets usually generate

A)high returns.
B)returns like stocks.
C)returns like bonds.
D)lower returns.

Question 21

If you are on a fixed income,you should not invest in

A)bonds.
B)stocks that pay cash dividends.
C)growth stocks.
D)certificates of deposit.

Question 22

Purposes of managing liquidity include all of the following except

A)determining how to keep the majority of your assets in liquid form.
B)having enough liquid assets to cover cash shortage deficiencies.
C)maintaining adequate liquidity to avoid borrowing every time you need money.
D)maintaining just enough liquid assets to meet your needs.

Question 23

Which of the following statements about insurance is not true?

A)It protects you from events that could reduce your wealth
B)Money used to buy insurance is not available for investing
C)You cannot have too much insurance
D)All of the above are true about insurance

Question 24

Which of the following assets will not increase your liquidity?

A)Checking account
B)Money market mutual fund
C)Cash in a Roth IRA
D)Cash in your wallet

Question 25

Monitoring financing includes evaluating all of the following balances except

A)credit cards.
B)mortgage loans.
C)personal loans.
D)Roth IRA.

Question 26

Compared to the stocks of larger firms,the stocks of smaller firms are

A)less volatile.
B)more volatile.
C)more liquid.
D)safer.

Question 27

A home equity loan may do all of the following except

A)give you a tax deduction if you itemize.
B)increase your current purchasing power.
C)increase your spending in the future.
D)prevent you from achieving your financial goals.

Question 28

Insurance protects against events that could reduce

A)your income.
B)your chances of an accident.
C)your wealth.
D)Both A and C.

Question 29

Monitoring liquidity does not include tracking

A)bank account balances.
B)money market securities.
C)certificates of deposit.
D)bond mutual funds.

Question 30

Which of the following investments achieves the greatest diversification?

A)Stocks
B)Bonds
C)Mutual funds
D)Savings accounts

Question 31

If you want periodic income,which of the following investments should you purchase?

A)Bonds
B)Stocks that pay cash dividends
C)Mutual funds
D)A and B

Question 32

Disability insurance protects your ________ first and your ________ second.

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

Question 33

One advantage of financing with a mortgage or using a home equity loan is that the interest payments are

A)at below market rates.
B)tax-deductible.
C)for an asset.
D)the largest part of the payment.

Question 34

Personal financing does not

A)allow you to make purchases without having the full amount of cash on hand.
B)increase the amount of your assets.
C)prove useful for large purchases.
D)help in increasing your ability to save.

Question 35

Which of the following is not true?

A)You should use all of your liquid assets to pay off loans
B)Paying off loans is appropriate when the interest rate is relatively high
C)Paying off loans is wise when the expected rate you will earn on investments is lower than the interest rate on the loan
D)Loan payments you make restrict your spending and saving and may prevent you from achieving financial goals

Question 36

If you are a high-income individual,you should not invest in

A)stocks that pay cash dividends.
B)growth stocks.
C)municipal bonds.
D)global mutual funds.

Question 37

Which of the following should you do first?

A)Invest in liquid assets
B)Pay off loans
C)Buy insurance
D)Make investments

Question 38

Key documents for managing investments include all but

A)retirement plan balances.
B)account balance showing the market value of mutual funds.
C)insurance policies.
D)stock certificates.

Question 39

The purpose of insurance is to protect your

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

Question 40

Financial documents should be

A)kept in a desk drawer in your home for easy access.
B)kept in a safety deposit box.
C)kept at your parent's house in their desk.
D)None of the above.

Question 41

What is the disadvantage of retirement investments compared to other investments?

A)Low returns
B)Low liquidity
C)High risk
D)Low risk

Question 42

As a result of the ________,the more you spend the less money you will have for liquidity or investments.

Question 43

Name three ways to protect and maintain your wealth.

Question 44

If you save monthly for retirement,which of the following would be used to determine how much you would ultimately have in your retirement account?

A)Present value of an annuity
B)Future value of an annuity
C)Present value of $1
D)Standard deviation

Question 45

________ should be kept in a safe at home or in a safety deposit box at a bank.

Question 46

It is easier to make monthly loan payments if you select financing that has relatively ________ maturities.

Question 47

List five areas that affect your financial plan.

Question 48

Which of the following investments generally reduces pre-tax income?

A)Stocks
B)Retirement accounts
C)Mutual funds
D)Bonds

Question 49

What are three types of financing you have studied?

Question 50

Most people set financial goals early in life and these goals rarely change.

Question 51

As time passes,your financial position and goals are likely to change so you will need to revise your financial plan.

Question 52

You should invest in ________ if you need periodic income.

Question 53

Which of the following will not improve your net worth?

A)Increase your income
B)Decrease your expenses
C)Increase your assets
D)Increase your liabilities

Question 54

To increase your net worth you should

A)pay off bills.
B)spend your money carefully.
C)invest in appreciating assets.
D)Both A and C.

Question 55

You are 25 years old and saving for an early retirement.Assuming you have a high-risk tolerance,which of the following can best help you reach your goal of retiring early?

A)NOW account
B)MMDA account
C)Common stock
D)CT bills

Question 56

In deciding how much to contribute to your retirement,which of the following should you least consider?

A)Anticipated inheritances
B)Other financial goals
C)Liquidity needs
D)Current expenses

Question 57

Which of the following does not increases your net worth?

A)An increase in your retirement balance
B)An increase in your home value
C)An increase in your mutual funds
D)The purchase of a new car

Question 58

________ is a means of protecting your assets and income.

Question 59

Which of the following key documents should not be kept in a safety deposit box?

A)The only copy of your will
B)Your monthly bank statement
C)Original copies of life insurance policies
D)Deed to your house

Question 60

Which of the following will increase your net worth over time?

A)Leasing a car
B)Renting a house
C)Buying a house
D)All of the above.

Question 61

Financial statements include all of the following except a(n)

A)balance sheet.
B)income statement.
C)cash flow statement.
D)asset allocation statement.

Question 62

What are four types of financial investment balances that you should monitor?

Question 63

Even average people can accumulate wealth by

A)spending less than they make.
B)spending more than they make.
C)eating out less often.
D)winning the lottery.

Question 64

A financial plan should be

A)prepared when you graduate from college and carefully followed thereafter without changes.
B)prepared when you graduate from college and carefully followed until you retire when you will no longer need one.
C)prepared when you graduate from college and reviewed/adjusted as events such as marriage,job changes,birth of children,and retirement necessitates.
D)done only in a rough outline as it will change too often to make anything more detailed feasible.

Question 65

You are single and live in a furnished apartment.Which of the following are you most likely to need?

A)Stockbroker
B)Life insurance
C)A will
D)A budget

Question 66

The purpose of financial planning is to help do all of the following except

A)set goals.
B)increase your spending.
C)become financially educated.
D)increase wealth or net worth.

Question 67

Key documents for managing personal financing include all but

A)credit card balances.
B)retirement account balances.
C)personal loans,such as automobile loans.
D)mortgage loan agreement.