Exam 1 (Ch. 1,2,& 3) Notes Personal Finance

Household size is a major influence on personal financial planning decisions. True
Inflation inccreases yhr buying poer of money. False
When prices are increasing at a rate of 3%, the cost of products would double in a about twelve years. False
A financial plan is another name for a budget. False
Opportunity costs refer to what a person gives up when making a decision. True
Developing financial goals is the first step in the financial planning process. False
A major activity in the planning component of financial planning is Allocating current resources for spending.
A question associated with the saving component of financial planning is Do you have an adequate emergency fund?
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a Financial plan
Brad Opper has a goal of “saving $50 a month for vacation.” Brad’s goal lacks A time frame
Which of the following goals would be the easiest to implement and measure its accomplishment? “Save $100 a month to create a $ 4,000 emergency fund.”
If you put $1,000 in a savings account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years? future value of a single amount
Which of the following is an example of opportunity cost? Saving money instead of taking a vacation.
Changes in income, values, and family situation make it necessary to Evaluate and revise your actions
With an inflation rate of 9%, prices would double in about __________ years? 8
If a $1,000 investment increases to $1,080 in a year, the rate of return is _________ percent. 8.00
Annual earnings on a $4,000 savings acct. earning 4.02% would be about $160
The future value of $1,000 deposited a year for 5 yrears earning 4% would be approximately $5,400
When one money management decision is selected, something else must be given up. True
Financial records that may need to be referred to on a regular basis should be kept in a safe-deposit box. False
A personal balance sheet reports your income and expenses. False
A person’s lifestyle is a reflection of his or her values, goals, career, and family situation. True
A person’s net worth is the difference between the value of the items owned and the amounts owed to others. True
Which of the following are considered to be personal financial statements? Balance sheet and cash flow statement
An individual retirement account is an example of a(n) ____________ asset. Investment
Current liabilities differ from long-term liabilities based on When the debt is due
Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future? Current liabilities
A person’s net worth would increase as a result of reduced amounts owed to others.
A cash flow statement reports a person’s or a family’s Current income and payments
Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate? Find a place to live with a lower rent
A budget deficit would result when a person’s or family’s actual expenses are greater than planned expenses.
A family with $45,000 in assets and $22,000 of liabilities would have a net worth of $23,000.
The Hernandez family budgets $420 a month for food. Last month they spent $413, which creates A budget surplus of $7
Taxes are only considered in financial planning activities in April. False
Taxable income is the total earnings of a person. False
A tax credit is an amount subtracted directly from the amount of taxes owed. True
A person’s filing status is affected by marital status and dependants. True
The total of a person’s itemized deductions is determined on Schedule A of Form 1040. True
Tax avoidance refers to illegal actions to reduce one’s taxes. False
Capital gains refer to profits from the sale of investments. True
The ______ _______ property tax is based on the value of land and buildings. real estate
Taxable income is used to compute a person’s ___________ ______ income tax
Which of the following would be deducted from gross income to obtain adjusted gross income? alimony payments
____________ ____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income. itemized deductions
An exemption affects a person’s tax situation by reducing the taxpayer’s taxable income
Which of the following ia an example of a tax credit? Child and dependent care expenses.
A taxpyer whose spouse recently died is most likely to use the _________ filing status. Qualifying widow or widower
Which type of audit is the leasdt complicated for taxpayers? A correspondance audit.
The use of legitimate methods to reduce one’s taxes is tax Avoidance
George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to an individual retirement account of $1,500, and dividends from mutual funds of $600. George’s adjusted income (AGI) would be $33,900
Personal finance planning has the main goal of Putting money to work and living within your means
The stages that an individual goes through based on age, financial needs, and family situation iscalled the Adult life cycle
The study of how wealth is created and distributed is Economics
The main economic influence that determines prices is Supply and demand
Reduced funds available for investment in our economy could result from Higher imports than exports (Crowding out)
Attempts to increase income are part of the ____________ component of financial planning. Obtaining
The ability to convert financial resources into usable cash with ease is referred to as Liquidity
The major function of a financial plan is to Achieve financial goals
As Bobbie White plans to set aside funds for her young children’s college education, she is settinga(n) ____________ goal. Long-term.
Opportunity cost refers to The trade-off of a decision
The time value of money refers to Increases in an amount of money as a result of interest
The amount of interest is determined by multiplying the amount in savings by the Annual interest rate and the time period
If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type ofcomputation? Future value of a series of deposits
Which type of computation would a person use to determine current value of a desired amount forthe future? Present value of a single amount
Future value calculations are also referred to as Compounding(Present value calculations)
The first step of the financial planning process is to Analyze your current personal and financial situation
____________ risk refers to the danger of lost buying power during times of rising prices. Inflation
The uncertainty associated with decision making is referred to as Risk
With an inflation rate of 6 percent, prices would double in about ___________ years. 12 (Rule of 72) 72 / 6 = 12
If a $1,000 investment increases to $1,040 in a year, the rate (%) of return is ____ percent. 4.0% (Principal x Rate x Time = Answer)1000 x .04 x 1 = 4.0%
Money management refers to . Day-to-day financial activities
An example of a personal and employment document is a Social Security card
A personal balance sheet presents Items owned and amounts owed
Items with a monetary worth are referred to as Assets
Liquid assets refer to Items of value that are easily converted to cash
Liabilities are amounts representing Debts
Which of the following would be considered a long-term liability? A mortgage
A person’s net worth is computed by Subtracting total liabilities from total assets
Which of the following presents a summary of income and outflows for a period of time? A cash flow statement
Total earnings of a person less deductions for taxes and other items is called Take-home pay
Payments that vary from month to month are ____________ expenses Variable
An example of a long-term goal for a young couple may be Income for retirement
The payment items that should be budgeted first are Fixed expenses
The difference between the amount budgeted and the actual amount is called a Budget variance
If a family planned to spend $470 for food during March but spent $500, this difference would bereferred to as a Deficit
A family with $50,000 in assets and $22,000 of liabilities would have a net worth of $28,000 (Assets – Liabilities = Net Worth)
In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950,resulting A surplus of $150
A savings amount of $5,000 on deposit for 8 years at 4 percent interest (compounded annually)would earn about $1,840 ($5,000 x 4% = $200 a yr. – 200 x 8 = $1,600 but is compounded to $ 1,840)
The main purpose of taxes is to Generate revenue for funding government programs
Which type of tax is imposed on specific goods and services at the time of purchase? Excise
Money received by an individual for personal effort is ____________ income. Earned
Money received in the form of dividends or interest is ____________ income. . Investment
An expense that would be included in the itemized deductions of a taxpayer is Real estate property taxes
A deduction from adjusted gross income for yourself, your spouse, and/or qualifieddependents is An exemption
An exemption affects a person’s tax situation by Reducing the taxpayer’s taxable income
A tax ____________ is an amount subtracted directly from the amount of taxes owed. Credit
The “head of household” filing status is for people who are Not living with a spouse and have dependent children
Which type of audit is the most complicated for taxpayers? A field audit
The use of legitimate methods to reduce one’s taxes is tax ____________. Avoidance
An IRA, Keogh plan, and 401(k) plan are examples of Tax-deferred retirement plans

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