Personal Finance – Exam 1

Why should you care about the power of compounding and the time value of money?A. You may outlive you Social Security and employer’s retirement plan.B. It is possible to build a large estate for yourself, spouse, and children.C. The sooner you start saving for retirement, the less you have to save each year.D. It is critical to obtaining your future financial goals.E. all of the above E. All of the above
The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement. True
A debit card is something of a cross between a credit card and a checking account. True
One’s ________ is found by dividing total debt or liabilities by total assets. A. Debt ratio
The purpose of using financial ratios is to: E. Both C and D above (better understand how you are managing your financial resources and help to analyze your raw data to compare how well you are doing)
Contributing $2,000 into a tax-deferred retirement plan in a 28% tax bracket will save D. $560
Which one of the following is not one of the five basic steps in personal financial planning? D. Let an accountant review your plan
If he sticks to this plan, Arnold’s savings will have grown to approximately ______ by age 62. D. $116,723
Personal financial planning can help you to:A. deal with unplanned health issuesB. minimize your chances of personal bankruptcyC. have enough money for a comfortable retirementD. minimize you tax payments to uncle SamE. all of the above E. All of the above
Your net worth, or your general level of financial worth, is found by E. Subtracting your liabilities from your assets
Which of the following would offset your tax liability in a direct dollar for dollar manner and may actually increase your tax refund beyond the amount paid during the tax year? B. Tax Credit
Suppose that Cheryl’s only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. Her only liabilities are a student loan balance of $2,000 and a balance of $8,000 on her car loan. What is her net worth? C. $5,000
Which indicates the correct order to completing your tax returns? C. Determine gross income, subtract adjustments, subtract deductions, claim exemptions, calculate total tax
What is the name for an automatic loan made to your checking account whenever your account doe not contain enough cash to cover the checks that you have written against it? B. Overdraft Protection
Practical used of an income statement include:A. determining whether you are earning more than you spendB. knowing where your money is goingC. Spotting problem areas of overspendingD. determining if money is available for saving or investmentE. all of the above E. All of the above
Which of the following is not a disadvantage of credit cards? A. They allow the consumer the ability to rent cars and make online reservations.
The term that considers having money readily available when your need it is the concept of liquidity.
Which of the following is not a single-purpose credit card?A. Toys R UsB. Macy’sC. Shell OilD. SearsE. Bank of America Visa E. Bank of America Visa
A solid understanding of personal finance will:A. allow you to take advantage of changes in the economyB. enable you to protect yourself from an incompetent investment advisorC. give you the ability to make intelligent investmentsD. help you understand the importance of planning for you financial futureE. all of the above E. All of the above
One of the following lists constitutes the five Cs of credit. Select the correct one. E. Character, capacity, capital, collateral, conditions
How do you compare cash management alternatives to determine which is best for you?A. Consider their safety or riskB. Take into account their tax statusC. Compare returns using comparable interest ratesD. All of the above D. All of the Above
Being financially secure involves balancing what you earn with D. what you spend
Suppose that you are not able to complete you tax returns by April 15. Which of the following statements is most accurate? A. You can apply for an automatic extension – no questions asked, but you must enclose a check in payment for estimated taxes due.
Assuming the APR on your credit card if 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be? B. $150
Cash and investments that can be easily converted into cash are termed C. Liquid Assets
The amount of income taxes that you actually pay is based upon your D. Taxable income
John Madrid put $1,000 into a mutual fund yielding an 18% Annual Rate of Return. Using the Rule of 72 calculate approximately how long will it take to double in value. C. Four years
The ___ Principle states that a dollar today is worth more than a dollar in the future. B. Time Value of Money
What advice would you give to Monty concerning his use of credit cards?A. seek out a non-profit credit counseling companyB. learn the difference between a want and a need- gambling in Vegas is not a need.C. learn to live within your means.D. all of the above D. All of the above
A savings alternative that pays a fixed rate of interest while keeping your funds of deposit for a contracted period of time that can range from 30 days to several years is called a C. Certificate of deposit

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