Terms in this set (62)
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n)
B. Financial Plan
The major function of a financial plan is to
C. Achieve financial goals
An advantage of personal financial planning is:
C. Increased control of financial affairs
The stages that an individual goes through based on stages in the family and financial needs is called the
D. Adult life cycle
Sally Smith's friends have told her that they think she should consider a visit to a personal financial planner. Why do you think her friends made the suggestion?
D. Sally plans to quit her job and volunteer for local organizations
John Jones was laid off of his job two months ago. He just received an offer for a position that pays 2/3 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.
The consumer price index reflects:
C. The change in prices of products and services of urban consumers
The inflation rate for a household will be:
D. Either greater than or less than the inflation rate as reported by the CPI depending on the household's "basket" of goods and services purchased
The Rule of 72 is:
B. Used to estimate how long it takes for prices to double using a given annual inflation rate
Who is most likely to benefit by inflation?
Higher consumer prices are likely to be accompanied by
D. Higher interest rates
An investor should expect to receive a risk premium for
C. Higher potential earnings due to uncertainty
Which of the following would increase the interest rate for a loan?
A. Poor credit rating
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?
B. His credit rating is poor because of his late payments
Attempts to increase income are part of the _____________ component of financial planning.
The 'borrowing' activity in a financial plan relates to
E. Maintaining control of credit-buying habits
The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning
A question associated with the saving component of financial planning is:
A. Do you have an adequate emergency fund?
Which of the following short-term goals is stated most clearly?
A. Buy a car for less than $17,000 within 6 months
Which of the following long-term goals is stated most clearly?
E. Invest $50 per month for the next 18 years for my nephew's college fund
Which of the following intermediate goals is stated most clearly?
C. Purchase a house with a mortgage no greater than $150,000 within 3 years
Which of the following goals would be the easiest to implement and measure?
D. Save $100 a month to create a $4,000 emergency fund.
The goal of investing $50 per month for the next 18 years for your nephew's college fund is a(n) __________ goal.
Many Americans have money problems because of
A. Poor planning and weak money management habits
Fran Gardner has a goal of "saving $25 per month for a TV." Fran's goal lacks
E. A time frame
Which of the following is correct?
E. Food and clothing are consumable-product goals
_________ goals relate to infrequently purchased, expensive items
To develop a financial plan, one should
D. Identify specific, realistic goals along with the time frame and an action plan
The goal of purchasing a long-term care insurance policy would be most appropriate for
D. A single adult nearing retirement age.
Opportunity cost refers to
B. The trade-off of a decision.
Rob Redbird 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?
Which of the following is an example of opportunity cost?
B. Saving money instead of taking a vacation
An example of a personal opportunity cost would be
D. Time comparing several brands of personal computers
The time value of money refers to
D. Increases in an amount of money as a result of interest earned
Because of interest that can be earned, if I can invest a dollar today, it should be worth _________ in the future.
To calculate the time value of money, we need to consider all except the
D. Type of investment.
Future value computations are also referred to as
Present value computations are also referred to as
Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 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?
E. Future value of an annuity
Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?
D. Present value of an annuity
Tim Calibe received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house he plans to purchase in 3 years. What type of computation should he use?
B. Future value of a single amount
Rebecca Gladyn 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?
E. Future value of an annuity
Paul Jacoby wants to deposit money today for a vacation he plans to take to Asia after he graduates from Grad 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
The first step of the financial planning process is to
C. Analyze your current personal and financial situation.
Financial decisions related to income include all except the following
Place the following steps for a personal financial plan in the proper order:
1. Review and revise your plan
2. Identify alternative courses of action
3. Create and implement your financial action plan
4. Determine your current financial situation
5. Evaluate your alternatives
6. Develop your financial goals
D. 4, 6, 2, 5, 3, 1
The uncertainty associated with decision making is referred to as
The changing cost of money is referred to as ____________ risk.
The rising of prices that causes changes in buying power is referred to as ____________ risk
The loss of a job is referred to as ____________ risk.
The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk.
The potential for difficulty to convert an investment to cash is referred to as ____________ risk
Changes in income, values, and family situation make it necessary to
A. Evaluate and revise your actions.
The step in the personal financial planning process that follows "Create and implement your financial action plan" is
A. Review and revise your plan
Using the services of financial institutions or specialists (such as insurance agents or investment brokers) will be most evident in your effort to
D. Implement the financial plan.
If inflation is expected to be 8 percent, how long will it take for prices to double?
C. 9 years
If a $10,000 investment increases to $10,090 in one year, what is its rate of return?
A. .9 percent
If a $10,000 investment earns a 9% annual return, what should its value be after one year?
If a $10,000 investment earns a 9% annual return, what should its value be after 7 years?
If Patty Shoemaker estimates that her $75 weekly grocery bill will increase at an annual inflation rate of 3%, what should her weekly grocery bill be in 5 years?
Annual earnings on a $2,000 Certificate of Deposit earning 3.15% would be
Randy Hill wants to retire in 40 years with $2,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal?
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