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Finance 223 Exam 1
Terms in this set (74)
T/F: Financial planning is only necessary if you have a lot of money
T/F: A budget is an orderly estimate of income and expenditures
T/F: Defining financial goals is an important first step of your financial planning process
T/F: Balance sheet shows financial condition as of the time the statement is prepared
T/F: Financial planning is a continuing lifelong process?
T/F: If you're eligible to receive a tax refund you will have to file a tax return to get it
T/F: Successful financial plan would be based on a person's goals?
T/F: You're more likely to achieve your goals if you have a definite goal date
T/F: The need for financial planning declines as your income increases
T/F: You should itemize deductions when the total itemized deductions exceed the standard deductions
T/F: A budget is a detailed financial forecast
T/F: The standard of living is defined as the comforts, necessities, and luxuries defined by a group
T/F: Tax avoidance is legal, tax evasion is illegal
T/F: If you have any earned income you are required to file a tax return
False (you are only required if you make more than $6,300)
T/F: Retired people often choose investments offering high income w/ high risk
T/F: Closed-ended mutual funds are guaranteed and cannot lose value
T/F: Open-ended investment company commonly known as mutual fund
T/F: Funds objective must be stated in its prospectus
T/F: Investing is considered a short term activity that involves buying and selling securities
Mutual funds provide professional management and diversification that individual investors cannot obtain on their own
T/F: Investing is the process of placing money in some medium (stocks/bonds) with the expectation of getting some future benefit
T/F: Mutual fund prospectus is required to disclose all fund fees and expenses
T/F: Common stocks guaranteed dividends each year
T/F: The risk of free rate of return is often measured from the return on treasury bills
T/F: All securities involve some sort of risk
T/F:Changes in values of securities due to social, economical, or political factors are referred as market risk
T/F: A lower expected return will mean higher risk will be expected
What does inflation refer to?
Personal financial management is important because?
Makes financial goals easier to achieve
What is the main purpose of a budget?
Monitor and control financial outcomes
What is the balance sheet equation?
Total assets-total liabilities=net worth
The balance sheet describes the family's financial position when?
At a certain point in time
Employee benefits may include what?
All of the above
Net worth is what?
The difference between total assets and total liabilities
The federal government gets the majority of its revenue from what tax?
The federal income tax
Connie is a 20-year-old college student. She earned $8000 and spent it all on her own support. Her parents may claim her as a tax dependent as long as what?
They contribute more than half her support
Financial goals should be what?
All of the above
What is the last step in the financial planning process (6th)?
Redefine goals and revise plans and strategies
A progressive tax system is what?
Higher income people pay higher rate of taxes compared to lower
Most common reason given for investing is what?
During a bear market, prices do what?
Which of the following is an order to sell stock when market price drops to or below a specific level?
Stop Loss Order
The Federal Government regulates security markets through what?
SEC - Securities & Exchange Commission
Stock Brokers also known as what?
Which of the following investments has the highest liquidity risk?
Companies with a great deal of long term debt are considered to have long _____________ risk?
Corporate ownership is evidence of what?
Smith family owns 200 shares of a company, company declares 5% dividends. How many shares do they have now?
Cash dividends on common stock are most often paid when?
Mutual funds allow investors to what?
Become owners of a widely diversified portfolio of securities
Investors tend to use mutual funds for which reasons?
All of the above
A fund that invests only in a particular industry is what?
A Sector Fund
Completion questions (pick one answer):
Both you and your employer OR only your employer will make social security contributions?
Tax avoidance OR evasion involves failure to accurately report on
Your income tax filing status is determined primarily by what?
When matching social security contributions, employers pay what; the same OR less?
If you can be claimed on your parents' tax return you may OR may not claim yourself on your own tax return?
Tax avoidance OR evasion is perfectly legal?
A stronger economy leads to a higher or lower rate of employment?
____________ is a document made available to prospective security buyers
Investing is a short-term activity or a long-term activity?
Publicly traded corporations are _____________ to provide annual reports to stock holders
Ownership in a corporation represented by _____________
Past returns on an investment are a _______________ of future returns
Higher or lower bond ratings, the more likely an issuer will default?
The actual ownership of a mutual fund is in the hands of ___________________
What is the formula for the debt service ratio, what the percentage is and whether it should be lower or higher?
Formula: Total monthly loan payments/monthly gross income before tax
-Lower is better
Why should you use personal finance planning in your life?
Increase standard of living, spending money wisely, financial security, accumulate wealth, retirement & family financial security etc.
Assuming that you had earnings from the past year and you have $5000 in taxable income, what tax bracket would you be in?
10% bracket; you pay $500 in taxes
What are the 6 steps of the financial planning process in order?
1) Define financial goals
2) Develop financial plans and strategies to achieve the goals
3) Implement financial plans and strategies
4) (Periodically develop and implement) Budget to monitor and control progress
5) (Use) Financial statements to evaluate results (of the plans and budgets) taking corrective action
6) Redefine goals and revise plans/strategies
Advantages of a Roth IRA and guidelines to buy them.
Allows for (after tax contributions) with (potential for tax free income after retirement). Also allows an individual to (invest in a wide variety of investments).
Guidelines: Have an earned income (W2). $5,500 is max you can put in a year if under 50.
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