Question 1

Jamie wants to have $1,000,000 for her retirement in 25 years. How much should she save annually if she expects to earn 10% on her investments?

Accepted Answer

The answer of Jamie wants to have $1,000,000 for her...

Question 2

Inflation is expected to be 3% in the coming year. If Mr. Gonza earned $45,000 this year, how much must he earn in the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures? (Show all work.)

Accepted Answer

The answer of Inflation is expected to be 3% in...

Question 3

The process of finding present value is called:
A) discounting.
B) calculating.
C) compounding.
D) computing.
E) balancing.

Accepted Answer

The process of finding present value is called discounting. This involves determining the value today of an anticipated cash flow that will occur in the future by applying a specified discount rate.

Question 4

Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

Accepted Answer

The answer of Jean and Jim have liquid assets of...

Question 5

Construct a balance sheet using the following information. Be sure the format is correct. (Show all work.)

Accepted Answer

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Question 6

Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)
A) 8
B) 9
C) 10
D) 11
E) 12

Accepted Answer

To double the initial investment of $5,000, the account must be worth $10,000. We can use the formula for compound interest:

A = P(1 + r/n)^(nt)

where:
A = final amount (in this case, $10,000)
P = principal (initial investment, $5,000)
r = annual interest rate (7% or 0.07)
n = number of times interest is compounded per year (we'll assume it's compounded annually, so n = 1)
t = number of years

Plugging in the values, we get:

10000 = 5000(1 + 0.07/1)^(1t)

Simplifying:

2 = (1.07)^t

Taking the log of both sides:

log(2) = t log(1.07)

Solving for t:

t = log(2) / log(1.07) ≈ 10.24

Rounding to the nearest whole number, it will take approximately 10 years for the account to double in value. So the best choice is C) 10.

Question 7

A cash budget will have value only if it is actually used and:
A) careful records of actual income and expenses are kept.
B) spending never deviates from the budgeted amount.
C) it reflects actual financial position.
D) it takes into account only credit transactions.
E) all liabilities are paid.

Accepted Answer

A cash budget is a useful tool for managing cash flow, but it is only effective if accurate records of income and expenses are kept to compare with the budgeted amounts. This allows for adjustments to be made to the budget as needed and for better financial management overall. Option B is not feasible as spending may deviate from the budgeted amount due to unforeseen circumstances. Option C is a given since a cash budget reflects the actual financial position, which is the purpose of having a budget. Option D is incorrect as a cash budget should take into account all transactions, including credit transactions. Option E is not relevant to the proper use of a cash budget.

Question 8

The real rate of return is also referred to as the real:
A) liability rate.
B) short-term rate.
C) estimated rate.
D) inflation rate.
E) interest rate.

Accepted Answer

The real rate of return is also referred to as the real interest rate. This rate adjusts the nominal interest rate (the rate before inflation) to account for the effects of inflation, providing a more accurate measure of the actual earning power of an investment.

Question 9

Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to this fund, what rate of interest would he need to earn? (Round the rate of interest to the nearest whole number.)
A) 6%
B) 7%
C) 8%
D) 9%
E) 10%

Accepted Answer

Phil needs his money to double in 8 years. Using the rule of 72, which is a simplified formula to estimate the number of years required to double the investment at a given annual rate of return, we divide 72 by the number of years to find the approximate interest rate. 72 divided by 8 years equals 9, suggesting a 9% interest rate is needed to double the investment in 8 years.

Question 10

Once you define your _____   financial goals, you can prepare a cash budget for the coming year.
A) post-retirement
B) short-term
C) immediate
D) long-term
E) career-oriented

Accepted Answer

Short-term financial goals are typically the ones you plan for within a year, making them relevant for preparing a cash budget for the coming year.

Question 11

_____  is the most preferred way for one to deal with budget deficits.
A) Liquidating savings and investments
B) Borrowing money from relatives
C) Cutting low-priority expenses
D) Increasing income
E) Paying all short-term liabilities

Accepted Answer

Cutting low-priority expenses is the best way to deal with budget deficits as it helps in reducing the immediate expenses and brings down the deficit amount. Liquidating savings and investments and borrowing money from relatives can have long-term consequences and should only be done as a last resort. Increasing income is also a good option, but it may not be easy to achieve in the short-term. Paying all short-term liabilities may reduce the debts but does not address the root cause of the deficit.

Question 12

_____  value is the value today of an amount to be received in the future.
A) Present
B) Future
C) Intrinsic
D) Extrinsic
E) Actual

Accepted Answer

Present value is the current value of a future payment, which takes into account the effect of interest rates or inflation over time. Future value, on the other hand, is the value that a current amount will grow to at a future date. Intrinsic and extrinsic value are terms used in finance and investing to describe the perceived value of an asset or investment, while actual value refers to the true value of an asset based on fundamental analysis. Therefore, only option A is the correct choice in this context.

Question 13

Rosa and Jose have liquid assets of $5,000 and other assets of $50,000. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

Accepted Answer

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Question 14

Inflation is expected to be 4% in the coming year. If Mr. Gonza earned $37,000 this year, how much must he earn in the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures? (Show all work.)

Accepted Answer

The answer of Inflation is expected to be 4% in...

Question 15

Michael and Sandy purchased a home for $100,000 5 years ago. If its value appreciated at 6% annually, what is it worth today? (Round the answer to the nearest dollar.)
A) $100,000
B) $106,000
C) $130,000
D) $133,823
E) $135,603

Accepted Answer

To find the value of the home today, we need to use the formula:
Current value = Original value x (1 + annual appreciation rate)^number of years
Current value = $100,000 x (1 + 0.06)^5
Current value = $100,000 x 1.3382
Current value = $133,823 (rounded to the nearest dollar) 
Therefore, the best choice is (D) $133,823.

Question 16

Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)
A) 8
B) 9
C) 10
D) 11
E) 14

Accepted Answer

To estimate the number of years it will take for an investment to double in value at a given annual interest rate, you can use the Rule of 72. This rule states that you divide 72 by the annual interest rate to get an approximate number of years for doubling. In this case, 72 divided by 5 equals 14.4, which rounds to 14 years.

Question 17

Elena purchased a stamp collection for $5,000 30 years ago. If its value appreciated at 8% annually, what is it worth today? (Round the answer to the nearest dollar.)
A) $17,000
B) $36,400
C) $50,313
D) $123,023
E) $150,000

Accepted Answer

Using the formula for compound interest: 
A = P(1 + r/n)^(n*t)
where 
A = final amount 
P = initial amount 
r = annual interest rate (as a decimal) 
n = number of times interest is compounded per year 
t = number of years

We have: 
A = 5000(1 + 0.08/1)^(1*30) 
A = $50,313

Therefore, the stamp collection is worth $50,313 today.

Question 18

Construct a balance sheet using the following information. Be sure the format is correct. (Show all work.)

Accepted Answer

The answer of Construct a balance sheet using the following...

Question 19

The concept that a dollar today is worth more than a dollar received in the future is known as:
A) the rule of 72.
B) the time value of money.
C) compounding .
D) discounting.
E) the Fisher equation.

Accepted Answer

The concept that a dollar today is worth more than a dollar received in the future is known as the time value of money. This is because money today can be invested and earn interest, so it will be worth more in the future.

Question 20

The Hamptons want to have $1,750,000 for their retirement in 30 years. How much should they save annually if they expect to earn 8% on their investments?

Accepted Answer

The answer of The Hamptons want to have $1,750,000 for...

Quiz 2: Developing Your Financial Statements and Plans

Jamie wants to have $1,000,000 for her retirement in 25 years. How much should she save annually if she expects to earn 10% on her investments?

Inflation is expected to be 3% in the coming year. If Mr. Gonza earned $45,000 this year, how much must he earn in the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures? (Show all work.)

The process of finding present value is called:

Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

Construct a balance sheet using the following information. Be sure the format is correct. (Show all work.)

Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)

A cash budget will have value only if it is actually used and:

The real rate of return is also referred to as the real:

Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to this fund, what rate of interest would he need to earn? (Round the rate of interest to the nearest whole number.)

Once you define your _____ financial goals, you can prepare a cash budget for the coming year.

_____ is the most preferred way for one to deal with budget deficits.

_____ value is the value today of an amount to be received in the future.

Rosa and Jose have liquid assets of $5,000 and other assets of $50,000. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

Inflation is expected to be 4% in the coming year. If Mr. Gonza earned $37,000 this year, how much must he earn in the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures? (Show all work.)

Michael and Sandy purchased a home for $100,000 5 years ago. If its value appreciated at 6% annually, what is it worth today? (Round the answer to the nearest dollar.)

Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)

Elena purchased a stamp collection for $5,000 30 years ago. If its value appreciated at 8% annually, what is it worth today? (Round the answer to the nearest dollar.)

Construct a balance sheet using the following information. Be sure the format is correct. (Show all work.)

The concept that a dollar today is worth more than a dollar received in the future is known as:

The Hamptons want to have $1,750,000 for their retirement in 30 years. How much should they save annually if they expect to earn 8% on their investments?