Question 1

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

Accepted Answer

Evaluating your alternatives often involves researching various options to make informed decisions, and financial institutions can provide valuable insights and data for this purpose.

Question 2

One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs.Which component of financial planning does this deal with?

Accepted Answer

Managing risk is a crucial component of financial planning, and maintaining adequate insurance coverage is a key strategy for mitigating potential financial losses due to unforeseen events or circumstances.

Question 3

One aspect of financial planning is to buy stocks,real estate,and mutual funds with the potential for long-term growth.Which component of financial planning does this deal with?

Accepted Answer

Investing is the component of financial planning that deals with buying assets like stocks, real estate, and mutual funds for potential long-term growth.

Question 4

Patrick Jones is interested in purchasing a 65" LED TV for his living room.He knows that right now the TV will cost approximately $500.However,Patrick is a little concerned about his job.Patrick 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 Patrick worried about?

Accepted Answer

Patrick is concerned about income risk, which refers to the uncertainty about future income, in this case, due to the potential of being laid off from his job.

Question 5

Sophia Martin 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?

Accepted Answer

Sophia Martin's desire to travel after retirement and her goal to pay off her home loan are examples of developing financial goals, which is a crucial step in the financial planning process. This step involves identifying what one wants to achieve with their finances.

Question 6

Sophia Martin 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?

Accepted Answer

The answer of Sophia Martin knows that if she continues...

Question 7

Stella Jones likes to go to the movies once a week.When she is at the movies,she generally gets a large popcorn and a drink.Stella 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 Stella?

Accepted Answer

A consumable-product goal involves items that are used up relatively quickly and need to be purchased regularly, like Stella's weekly movie snacks.

Question 8

Paul Carter is 42 years old,married and has three children,ages 15,13 and 8.This discussion is a demonstration of what factor in personal financial planning?

Accepted Answer

The discussion of Paul Carter's age, marital status, and the ages of his children is a demonstration of the adult life cycle factor in personal financial planning. This factor considers how financial needs and goals change at different stages of an individual's life.

Question 9

Changes in personal,social,and economic factors make it necessary to:

Accepted Answer

Changes in personal, social, and economic factors can affect your financial situation and goals, making it necessary to review and revise your financial plan to ensure it remains aligned with your current needs and future objectives.

Question 10

Patrick Jones is interested in purchasing a 65" LED TV for his living room.He knows that right now the TV will cost approximately $500.Patrick wants to borrow the money to purchase the TV but is concerned that 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 Patrick worried about?

Accepted Answer

Patrick is concerned about interest rate risk, which is the risk that arises for bond owners from fluctuating interest rates. If he borrows money now and the interest rates fall in the future, he will end up paying more in interest than if he had waited.

Question 11

Natalie Smith is considering investing in 30-year corporate bonds issued by Duke Energy Company.She knows that she will earn an interest rate of 6% 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 Natalie concerned about?

Accepted Answer

Liquidity risk refers to the risk that an investor may not be able to sell an investment quickly and easily at a fair price. In this case, Natalie is concerned that she may not be able to sell the bonds at a fair price if she needs to take her money out of the investment in a year.

Question 12

Sophia Martin is assessing her balances.She expects to 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?

Accepted Answer

Sophia Martin is assessing her balances, savings, investments, and the value of her home, which indicates she is determining her current financial situation. This is the first step in the financial planning process, where an individual assesses their current financial status by compiling and analyzing information about their assets, liabilities, income, and expenses.

Question 13

One aspect of financial planning is to use credit appropriately/wisely.Which component of financial planning does this deal with?

Accepted Answer

Using credit appropriately or wisely falls under the aspect of borrowing in financial planning. This involves decisions related to taking on debt, such as loans or credit cards, and managing that debt effectively.

Question 14

Benjamin Smith 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 Benjamin?

Accepted Answer

A lawn mower is a durable good, which means it is a product that does not quickly wear out and provides utility over time, fitting the definition of a durable-product goal.

Question 15

Sophia Martin'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?

Accepted Answer

Sophia Martin's decision to change her travel plans and lifestyle indicates she is reviewing and revising her financial plan to better suit her current needs and desires. This step involves reassessing and adjusting one's financial strategies based on new circumstances or insights.

Question 16

Patrick Jones is interested in purchasing a 65" LED TV for his living room.Patrick knows that right now the TV will cost approximately $500.He 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 $800.Which type of risk is Patrick worried about?

Accepted Answer

Patrick is worried about inflation risk, which refers to the possibility that the value of money will decrease over time, leading to higher prices for goods and services. In this case, he is concerned that the price of the TV will increase from $500 to $800, which is a classic example of inflation risk affecting purchasing power.

Question 17

Sophia Martin has decided to retire 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?

Accepted Answer

Sophia is actively using her savings to fund her travel, which indicates she is implementing her financial plan.

Question 18

Sophia Martin wants to travel around the world.Sophia has three options she can pursue: she could continue to work full time to earn the money she needs for her trip,she could work part time so that she can still earn some money but have the time necessary to complete her trip,or she could 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?

Accepted Answer

Identifying alternative courses of action involves considering different ways to achieve your financial goals, which is what Sophia is doing by considering full-time work, part-time work, or retirement to fund her trip.

Question 19

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

Accepted Answer

Investing in a mutual fund for six years to accumulate retirement funds is considered a long-term financial strategy because it involves planning and saving for future financial goals over an extended period.

Question 20

One aspect of financial planning is to make wise decisions using a plan as to what to purchase and when to purchase it.Which component of financial planning does this deal with?

Accepted Answer

This aspect of financial planning deals with spending, as it involves making decisions about what to purchase and when, which directly relates to how one allocates their available funds for various expenses.

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