Question 1

Which of the following goals would be the easiest to implement and measure its accomplishment?
A) "Reduce our debt payments."
B) "Save funds for an annual vacation."
C) "Save $100 a month to create a $4,000 emergency fund."
D) "Clear credit card debt
E) "Invest $2,000 a year for retirement."

Accepted Answer

Saving $100 a month is a specific and measurable goal that can easily be tracked and accomplished. The end goal of creating a $4,000 emergency fund is also clear and achievable within a reasonable amount of time.

Question 2

The financial planning process concludes with efforts to:
A) develop financial goals.
B) create a financial plan of action.
C) analyze your current personal and financial situation.
D) implement the financial plan.
E) revaluate and revise your actions.

Accepted Answer

The financial planning process is an ongoing cycle that involves developing financial goals, analyzing your current situation, creating a plan of action, implementing the plan, and then reevaluating and revising your actions as necessary. This iterative process helps you to stay on track towards achieving your financial objectives over the long term. Therefore, the final step in the financial planning process is to reevaluate and revise your actions as needed in order to continually improve your overall financial situation.

Question 3

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.

Accepted Answer

Opportunity cost refers to the trade-off of a decision, meaning the value of the next best alternative that must be given up in order to pursue a certain action or decision.

Question 4

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:
A) Inflation risk
B) Interest rate risk
C) Income risk
D) Personal risk
E) Liquidity risk

Accepted Answer

Liquidity risk refers to the possibility of not being able to convert an investment into cash when it is needed. Therefore, the best choice is to avoid or minimize investments with high liquidity risk to ensure flexibility and accessibility to funds when required.

Question 5

A risk premium associated with interest rates refers to:
A) higher earnings due to uncertainty.
B) lower consumer prices.
C) the opportunity cost of borrowing
D) a loan with a short maturity.
E) expected lower inflation.

Accepted Answer

The answer of A risk premium associated with interest rates...

Question 6

Higher interest rates can be caused by:
A) a lower money supply.
B) an increase in the money supply.
C) a decrease in consumer borrowing.
D) lower government spending.
E) increased saving and investing by consumers.

Accepted Answer

The answer of Higher interest rates can be caused by:
A)...

Question 7

Changes in income, values, and family situation make it necessary to:
A) develop financial goals
B) implement the financial plan.
C) evaluate and revise your actions.
D) analyze your current personal and financial situation.
E) create a financial plan of action.

Accepted Answer

When changes occur in income, values or family situation, it is necessary to evaluate and revise your actions. This means that you need to revisit your financial plan and adjust it accordingly to fit your new circumstances. Developing financial goals and creating a financial plan of action may have already been done previously, and implementing the financial plan is ongoing. However, regularly evaluating and revising your actions is crucial to ensure that your financial plan remains relevant and effective.

Question 8

Higher consumer prices are likely to be accompanied by:
A) lower union wages.
B) lower interest rates.
C) lower production costs.
D) higher interest rates.
E) higher exports.

Accepted Answer

When consumer prices rise, there is often an increase in inflation. In order to combat inflation, central banks may raise interest rates to slow down economic activity and reduce price pressures. This makes borrowing more expensive for businesses and consumers, which can lead to reduced economic growth and potentially decreased demand for goods and services. Consequently, higher interest rates are likely to accompany higher consumer prices.

Question 9

Higher prices are likely to result from:
A) increased spending by consumers.
B) increased production by business.
C) lower interest rates.
D) lower demand by consumers
E) an increase in the supply of a product.

Accepted Answer

If consumers increase their spending, demand for goods and services will increase. This will lead to higher prices as businesses try to capitalize on the increased demand by raising prices.

Question 10

Personal financial planning has the main goal of:
A) Savings and investing for future needs.
B) Reducing a person's tax liability.
C) Managing money to achieve personal economic satisfaction.
D) Spending to achieve financial objectives.
E) Savings, spending, and borrowing based on current needs.

Accepted Answer

The main goal of personal financial planning is to manage money in a way that achieves personal economic satisfaction. This can involve a variety of strategies, including saving and investing for future needs, reducing tax liability, and spending to achieve financial objectives. However, the overarching goal is to create a financial plan that aligns with an individual's personal goals and priorities. Option A, E are partially correct but they do not fully capture the main goal of personal financial planning. Option B and D are not correct as reducing tax liability or spending to achieve financial objectives may not necessarily lead to personal economic satisfaction.

Question 11

As Jeanne Taillefer plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal.
A) intermediate
B) short term
C) long-term
D) intangible
E) durable

Accepted Answer

Setting aside funds for a child's college education is typically a long-term goal, as college expenses will not be incurred for many years.

Question 12

Increased consumer spending will usually cause:
A) lower consumer prices.
B) reduced employment levels.
C) lower tax revenues.
D) higher employment levels.
E) lower interest rates.

Accepted Answer

When consumer spending increases, businesses experience higher demand for their goods and services, which leads to an increase in production and expansion. As a result, businesses need to hire more workers, which leads to higher employment levels.

Question 13

The first step of the financial planning process is to
A) develop financial goals.
B) implement the financial plan.
C) determine your current personal and financial situation.
D) evaluate and revise your actions.
E) create a financial plan of action.

Accepted Answer

Before developing financial goals or creating a plan of action, it is important to understand your current personal and financial situation. This includes assessing your income, expenses, assets, liabilities, and current financial obligations. Once you have a clear understanding of your current situation, you can then develop realistic goals and create a plan of action to achieve those goals.

Question 14

Increased consumer spending will usually cause:
A) lower consumer prices.
B) reduced employment levels.
C) lower tax revenues.
D) lower interest rates.
E) higher employment levels.

Accepted Answer

Increased consumer spending leads to higher demand for goods and services, which results in businesses needing to hire more workers to keep up with the demand. This leads to higher employment levels.

Question 15

The present value of a future amount will decrease if _________________. 
I. the discount rate increases
II. the amount occurs closer in time
III. the compounding frequency increases
IV. inflation increases
A) I and II only
B) I and III only
C) II and III only
D) III and IV only
E) I, III and IV only

Accepted Answer

The answer of The present value of a future amount...

Question 16

____________ goals relate to personal relationships, health, and education.
A) Short-term
B) Intangible-purchase
C) Consumable-product
D) Durable-product
E) Intermediate

Accepted Answer

The answer of ____________ goals relate to personal relationships, health,...

Question 17

Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks
A) measurable terms.
B) a realistic perspective.
C) specific actions.
D) a tangible end.
E) a time frame.

Accepted Answer

The answer of Brad Opper has a goal of "saving...

Question 18

The changing cost of money is referred to as ____________ risk.
A) interest-rate
B) inflation
C) economic
D) trade-off
E) personal

Accepted Answer

Interest-rate risk refers to the potential impact of fluctuating interest rates on a company's cash flows, particularly in terms of variable rate debt or interest-sensitive assets. This risk can affect a company's profitability and is particularly relevant to financial institutions or companies with large debt positions.

Question 19

Who is most likely to benefit by inflation?
A) retired people
B) lenders
C) borrowers
D) low-income consumers
E) government

Accepted Answer

Borrowers benefit from inflation because they are able to pay back loans with money that is worth less than it was when they borrowed it. As inflation increases, the value of the borrowed amount decreases, so borrowers effectively pay back less than they originally borrowed.

Question 20

The uncertainty associated with decision making is referred to as:
A) opportunity cost.
B) selection of alternatives.
C) financial goals.
D) personal values.
E) risk.

Accepted Answer

The uncertainty associated with decision making is known as risk. While all of the other options may be relevant to decision making, they do not directly address the uncertainty or potential negative outcomes that can result from a decision.

Quiz 1: Personal Financial Planning: An Introduction

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

The financial planning process concludes with efforts to:

Opportunity cost refers to:

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

A risk premium associated with interest rates refers to:

Higher interest rates can be caused by:

Changes in income, values, and family situation make it necessary to:

Higher consumer prices are likely to be accompanied by:

Higher prices are likely to result from:

Personal financial planning has the main goal of:

As Jeanne Taillefer plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal.

Increased consumer spending will usually cause:

The first step of the financial planning process is to

Increased consumer spending will usually cause:

The present value of a future amount will decrease if _________________. I. the discount rate increases II. the amount occurs closer in time III. the compounding frequency increases IV. inflation increases

____________ goals relate to personal relationships, health, and education.

Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks

The changing cost of money is referred to as ____________ risk.

Who is most likely to benefit by inflation?

The uncertainty associated with decision making is referred to as: