Personal Finance Week 1

Intermediate goals are usually achieved within the next year or so.a) Trueb) False b) False
Opportunity cost refer to time, money, and other resources that are given up when a decision is made.a) Trueb) False a) True
Opportunity Cost What a person gives up by making a choice.
Adult Life Cycle The stages in the family and financial needs of an adult.
Personal Financial Planning The process of managing your money to achieve personal economic satisfaction.
Inflation A rise in the general level of prices.
Economics The study of how wealth is created and distributed.
Bankruptcy A set of federal laws that allow you to either restructure your debts or remove certain debts.
Present Value The current value for a future amount based on a certain interest rate and a certain time period.
Financial Plan A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.
Time Value of Money Increases in an amount of money as a result of interest earned.
Future Value The amount to which current savings will increase based on a certain interest rate and a certain time period.
Values Ideas and principles that a person considers correct, desirable, and important.
To develop a financial plan, one shoulda) Set several general goals for the short-termb) Only set long-term goals after short-term goals have been accomplishedc) Focus on intermediate goals firstd) Identify specific, realistic goals along with the time frame and an action plane) Not worry about whether or not the goals can be achieved based on one’s income and life situation d) Identify specific, realistic goals along with the time frame and an action plan
To calculate the time value of money, we need to consider all except thea) Payments.b) Annual interest rate.c) Length of time the money is invested.d) Type of investment.e) Principal. d) Type of investment.
The time value of money refers toa) Personal opportunity costs such as time lost on an activity.b) Financial decisions that require borrowing funds from a financial institution.c) Changes in interest rates due to changes in the supply and demand for money in our economy.d) Increases in an amount of money as a result of interest earned.e) Changing demographic trends in our society. d) Increases in an amount of money as a result of interest earned.
Present value computations are also referred to asa) Discounting.b) Add-on interest.c) Compounding.d) Simple interest.e) An annuity. a) Discounting.
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?a) General interest rates are very lowb) His credit rating is poor because of his late paymentsc) He already has a student loan outstandingd) Recent graduates are not allowed to have more than $25,000 in debt outstandinge) Interest rates must be tied to the CPI b) His credit rating is poor because of his late payments
The changing cost of money is referred to as ____________ risk.a) interest-rateb) inflationc) incomed) tradeoffe) personal a) interest-rate
The step in the personal financial planning process that follows “Create and implement your financial action plan” isa) Review and revise your planb) Identify alternative courses of actionc) Determine your current financial situationd) Evaluate your alternativese) Develop your financial goals a) Review and revise your plan
Place the following steps for a personal financial plan in the proper order:1. Review and revise your plan2. Identify alternative courses of action3. Create and implement your financial action plan4. Determine your current financial situation5. Evaluate your alternatives6. Develop your financial goalsa) 6, 1, 2, 5, 3, 4b) 4, 2, 6, 5, 3, 1c) 3, 6, 4, 2, 5, 1d) 4, 6, 2, 5, 3, 1e) 6, 2, 5, 4, 1, 3 d) 4, 6, 2, 5, 3, 1
The inflation rate for a household will be:a) Greater than the inflation rate as reported by the CPI since the index excludes the product or service with the highest inflation rate for the past 12 monthsb) Lower than the inflation rate as reported by the CPI since the index excludes the product or service with the lowest inflation rate for the past 12 monthsc) Equal to the inflation rate as reported by the CPI since it includes all products and services whether or not the prices have changed in the past 12 monthsd) Either greater than or less than the inflation rate as reported by the CPI depending on the household’s “basket” of goods and services purchasede) Zero since the CPI does not measure consumer price changes 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
Which of the following goals would be the easiest to implement and measure?a) Invest $2,000 a year for retirement.b) Reduce our debt payments.c) Save funds for an annual vacation.d) Save $100 a month to create a $4,000 emergency fund.e) Spend less each month. d) Save $100 a month to create a $4,000 emergency fund.

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