Test bank personal finance 11e jack kapoor ch1

Developing financial goals is the ______ step in the financial planning process.. Chapter 01 Personal Finance Basics and the Time Value ofMoney Answer Key True / False Questions Topic: F

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Chapter 01 Personal Finance Basics and the Time Value of Money

True / False Questions

1 Financial planning has specific techniques that will be effective for every individual and household

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11 Opportunity costs refer to what a person gives up when making a decision

14 Interest on savings is calculated by multiplying the money amount times the

opportunity cost times the annual interest rate

20 Gross Domestic Product (GDP) measures the total value of goods and services

produced within a country's borders, excluding items produced with foreign

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22 The main goal of personal financial planning is:

A saving and investing for future

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25 Higher consumer prices are likely to be accompanied by:

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29 The risk premium you receive as a saver is based in part on:

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32 The study of how wealth is created and distributed is:

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35 The main responsibility of The Fed is to:

A maintain an adequate supply of

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38 Attempts to increase income are part of the component of financial planning

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41 The problem of bankruptcy is associated with poor decisions in the component of financial planning

42 A question associated with the saving component of financial planning is:

A Do you have an adequate emergency

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44 When an individual makes a purchase without considering the financial consequences

of that purchase, ignores the aspect of financial planning

45 The success of a financial plan will be determined by:

A the amount of income

46 As Jean Tyler plans to set aside funds for her young children's college education, she

is setting a(n) goal

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47 goals relate to personal relationships, health, and education

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50 Opportunity cost refers to:

A money needed for major consumer

51 An example of a personal opportunity cost would be:

A interest lost by using savings to make a

52 The time value of money refers to:

A personal opportunity costs such as time lost on an

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53 The amount of interest is determined by multiplying the amount in savings by the:

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56 If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how long will it take your salary to double?

57 When prices are increasing at a rate of 6 percent, the cost of products would double

in about how many years?

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59 If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?

A Future value of a single

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62 Which of the following is an example of opportunity cost?

A Renting an apartment near

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65 The financial planning process concludes with efforts to:

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

A evaluate and revise your

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

A Determining her current financial

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71 Lynn Roy wants to travel around the world Lynn Roy has several options she can pursue She can continue to work full time to earn the money she needs for her trip She can work part time so that she can still earn some money but have the time necessary to complete her trip She can 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?

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74 Lynn Roy'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 hasdecided 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?

A Developing her financial

to $1800 Which type of risk is John worried about?

76 John Gleason is interested in purchasing a 46" rear projection TV for his living room

He knows that right now the TV will cost approximately $1500 John wants to borrow the money to purchase the TV but is a little concerned because he thinks 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 John worried about?

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77 John Gleason is interested in purchasing a 46" rear projection TV for his living room

He knows that right now the TV will cost approximately $1500 However, John is a little concerned about his job John 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 John worried about?

is Mary concerned about?

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80 Melanie Walsh likes to go to the movies once a week When she is at the movies, she generally gets large popcorn and a drink Melanie 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 Melanie?

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83 One aspect of financial planning is to control your use of credit Which aspect of financial planning does this deal with?

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86 When prices are rising at a rate of 3 percent, the cost of products and services would double in years

88 The annual price increase for consumer goods and services measured by the Bureau

of Labor Statistics is called

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89 If you desire your money to double in 6 years, what rate of return would you need to earn?

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92 You are planning to buy a house in five years How much do you need to deposit today to have a $10,000 down payment if your investment will make 6%?

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95 During , even though prices decline spending slows because consumers expect prices to continue to decline

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99 Developing financial goals is the step in the financial planning process

Developing and using a budget is part of which component of financial planning?

A Retirement and Estate

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Chapter 01 Personal Finance Basics and the Time Value of

Money Answer Key

True / False Questions

Topic: Financial Planning Process

Topic: Economic Conditions-Consumer Prices

Topic: Economics

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Topic: Components of Personal Financial Planning

Topic: Financial Plan

Topic: Types of Financial Goals

decisions Topic: Opportunity Costs

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decisions Topic: Time Value of Money

decisions Topic: Interest Calculations

decisions Topic: Time Value of Money-Present Value

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Topic: Evaluating Risk

Topic: Economic Conditions

Topic: Financial System and Economic Factors

Multiple Choice Questions

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(p 4)

The main goal of personal financial planning is:

A saving and investing for future

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Learning Objective: 01-02 Assess personal and economic factors that influence personal financial planning.

Topic: Rule of 72

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Topic: Economic Conditions-Consumer Spending

Topic: Economic Conditions-Interest Rates

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Difficulty: 3 Hard Learning Objective: 01-02 Assess personal and economic factors that influence personal financial planning.

Topic: Financial Opportunity Costs

Topic: Economic Conditions-Interest Rates

Topic: Adult Life Cycle

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Difficulty: 2 Medium Learning Objective: 01-02 Assess personal and economic factors that influence personal financial planning.

Topic: Federal Reserve System

35

(p 11) The main responsibility of The Fed is to:

A maintain an adequate supply of

Topic: Federal Reserve System

36

(p 8)

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:

Topic: Types of Risk

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Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-05 Identify strategies for achieving personal financial goals for different life situations.

Topic: Bankruptcy

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(p 25) A question associated with the saving component of financial planning is:

A Do you have an adequate emergency

Topic: Financial Plan

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(p 25) When an individual makes a purchase without considering the financial

consequences of that purchase, ignores the aspect of financial planning

45

(p 28)

The success of a financial plan will be determined by:

A the amount of income

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Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Develop personal financial goals.

Topic: Goal Setting Guidelines

50

(p 7) Opportunity cost refers to:

A money needed for major consumer

Topic: Opportunity Costs

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(p 18) An example of a personal opportunity cost would be:

A interest lost by using savings to make a

decisions Topic: Personal Opportunity Costs

52

(p 19)

The time value of money refers to:

A personal opportunity costs such as time lost on an

decisions Topic: Time Value of Money

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decisions Topic: Interest Calculations

54

(p 22)

If a person deposited $50 a month for 6 years earning 8 percent, this would

involve what type of computation?

decisions Topic: Time Value of Money-Future Value of an Annuity

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decisions Topic: Time Value of Money-Present Value of a Single Amount

Topic: Rule of 72

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decisions Topic: Time Value of Money-Future Value

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decisions Topic: Time Value of Money-Future Value of a Single Amount

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62

(p 7) Which of the following is an example of opportunity cost?

A Renting an apartment near

Topic: Opportunity Costs

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Blooms: Remember Difficulty: 2 Medium Learning Objective: 01-01 Analyze the process for making personal financial decisions.

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67

(p 9)

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

A evaluate and revise your

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Difficulty: 2 Medium Learning Objective: 01-03 Develop personal financial goals.

69

(p 5) Lynn Roy will 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?

A Determining her current financial

70

(p 5-6)Lynn Roy 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?

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(p 6) Lynn Roy wants to travel around the world Lynn Roy has several options she can pursue She can continue to work full time to earn the money she needs for her trip She can work part time so that she can still earn some money but have the time necessary to complete her trip She can 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?

72

(p 7) Lynn Roy 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

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(p 9) Lynn Roy has decided to take retirement from her job 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 Whichstep in the financial planning process does this scenario demonstrate?

74

(p 9) Lynn Roy'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?

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(p 8) John Gleason is interested in purchasing a 46" rear projection TV for his living room John knows that right now the TV will cost approximately $1500 John 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 $1800 Which type of risk is John worried about?

76

(p 8) John Gleason is interested in purchasing a 46" rear projection TV for his living room He knows that right now the TV will cost approximately $1500 John wants toborrow the money to purchase the TV but is a little concerned because he thinks 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 John worried about?

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(p 8) John Gleason is interested in purchasing a 46" rear projection TV for his living room He knows that right now the TV will cost approximately $1500 However, John is a little concerned about his job John 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 John worried about?

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(p 16) John Dean 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 John?

80

(p 16)

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

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Topic: Adult Life Cycle

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(p 26) One aspect of financial planning is to buy stocks, bonds and mutual funds with the potential for long term growth Which aspect of financial planning does this deal with?

Topic: Rule of 72

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Topic: Financial Planning Informational Sources

Topic: Consumer Price Index (CPI)

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Future value calculation (Table 1-A) $40,000 × 1.093 = $43,720.

Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 2 Medium Learning Objective: 01-04 Calculate time value of money situations associated with personal financial

decisions Topic: Time Value of Money-Future Value

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