WorksheetsMIDTERM EXAM - 25:26 Financial Lit
Total questions: 74
Worksheet time: 37mins
Which is included in the six key components of a financial plan?
managing your vehicle fleet and protecting your landscape.
planning for retirement and planning your interior.
managing your vehicle fleet and tax planning.
planning for retirement and tax planning.
The simple objective of financial planning is to make the best use of your resources to achieve your financial goals.
True
False
Making good financial decisions increases your wealth and allows you to more easily afford purchases of products or services in the future.
True
False
Personal finance decisions
have limited impact on you today.
typically have good outcomes.
all have consequences.
have consequences that are within your control
Personal finance does not include the process of planning your
spending.
spirituality.
financing.
investing.
Which item is not one of the components of a personal financial plan?
Budgeting
Investing your money
Educational goals
Planning your retirement
A personal financial plan specifies financial goals and describes
saving and spending only.
saving, investing, and asset valuation.
spending, financing, and investment plans.
spending, saving, and credit card financing.
A first step in achieving your financial goals is to
get a good job.
save as much of your income as possible.
increase your income.
establish a financial plan.
Making good personal finance decisions does not require you to be a genius but it does require
years of experience
the services of a financial advisor
common sense and discipline
a college degree
Personal finance information that you find online
should be used sparingly
is accurate since posting false financial information online is illegal
is rarely accurate
may not always be accurate
If you do not have access to money to cover cash needs, you may have insufficient liquidity.
True
False
Retirement planning should begin
you do not need to plan since Social Security and your firm's pension will be sufficient.
a few years before you plan on retiring.
as early as possible in order that you accumulate sufficient funds for retirement.
as soon as you start working full time.
Which of the following would not be considered an investment?
A. A membership in a golf or swim club
B. A savings account
C. An art collection
D. A mutual fund of stocks and bonds
Retirement planning should begin
at any time.
well before you retire.
when you retire.
shortly after you retire.
From a financial standpoint when should a person start retirement planning and saving?
At 55 – 60 years of age
At 45 – 50 years of age
At 50 – 55 years of age
When he or she first starts receiving a salary
Which are included in the six key components of a financial plan?
resolving family differences and planning for retirement.
resolving family differences and sharing your money.
managing liquidity and planning your interior.
managing liquidity and planning for retirement.
Why is it important to track your spending before creating a budget?
until you know what you spend money on it will be impossible to forecast all of your assets.
you need to estimate your future income
you need to ensure you have enough credit available
until you know what you spend money on it will be impossible to forecast all of your expenses
21. Estimating the Opportunity Cost. Julia is considering trading in her car for a new one. Her new car payment would be 325permonth,andherinsurancecostwouldincreaseby 60 per month. Julia determines that her other car-related expenses (gas, oil) would stay about the same. Julia's current car payment is $210 per month. What is the opportunity cost if Julia purchases the new car?
175
115
225
60
How much will the difference in lifetime earnings be over a 40-year career?
1,296,000
500,000
2,000,000
750,000
How much additional cost will Grantham incur over the four-year period if he opts to attend the private college?
58,800
42,500
65,000
33,200
24. Estimating Debt after Graduation. Mason selected a private university to attend. His tuition, room and board, and other costs were 47,000peryearforfouryears.HisbrotherKageattendedapublicinstitutionandelectedtoliveathomewiththeirparents.Kage′stotaltuitioncostswere 7,700 per year. Compare the debt loads of Mason and Kage after completing their degrees, assuming they borrowed to cover all costs. Ignore interest charges. Upon graduation, Mason will owe $____ more than Kage. (Round to the nearest dollar.)
157,200
120,000
188,000
100,800
Which of the following goals would be easiest to measure?
Invest for a comfortable retirement
Reduce debt payments
Save funds for an annual vacation
Save 100amonthtocreatea 4,000 emergency fund
Which of the following would be classified as a short-term goal?
Paying for your two-year-old child's college education
Purchasing a house in three years
Buying new clothes this month
Retiring in ten years
After your financial plan is developed it should be
monitored and updated annually.
locked away for safe-keeping so it isn't stolen.
sold to others.
reviewed every five years.
Opportunity cost refers to
evaluating different alternatives for financial decisions.
money needed for major consumer purchases.
the amount paid for taxes when a purchase is made.
what you give up or forego as a result of making a decision.
Impact of College Choice on Net Worth. Remi and Raina will both receive 101,000fromtheirgrandfatherwhentheygraduatecollegenextmonth.Remiwenttoapublicuniversityandaccumulated 26,000 in total student loan debt. Raina attended a private college and accumulated $173,000 in total debt. Assume that neither Remi nor Raina have additional assets or debts other than those described here. Calculate the net worth of Remi and Raina after receiving their inheritance.
Remi: 75,000; Raina: -72,000
Remi: 101,000; Raina: -72,000
Remi: 127,000; Raina: -72,000
Remi: 75,000; Raina: 28,000
What two personal financial statements are most important to personal financial planning?
The personal cash flow statement and the personal balance sheet
The personal income statement and the personal balance sheet
The personal cash flow statement and the personal income sheet
The personal asset flow statement and the personal income sheet
Define cash inflows and cash outflows and identify some sources of each. How are net cash flows determined? Cash outflows are monies paid out such as:
dividends and interest.
rent and interest.
groceries and dividends.
groceries and rent.
Define cash inflows and cash outflows and identify some sources of each. How are net cash flows determined? Net cash flows are:
asset inflows - asset outflows.
asset outflows - asset inflows.
cash outflows - cash inflows.
cash inflows - cash outflows.
Changing Your Cash Flows. Explain how you can revise your level of assets and your level of liabilities in order to increase your net worth.
maximize your cash flows by maximizing your cash inflows and maximizing the cash outflows.
maximize your cash flows by minimizing your cash inflows and minimizing the cash outflows.
maximize your cash flows by minimizing your cash inflows and/or maximizing the cash outflows.
maximize your cash flows by maximizing your cash inflows and/or minimizing the cash outflows.
How can peer pressure affect your cash outflows?
Some people spend money to keep up with their peer group. They may buy cars or a house that is similar to their peers even if they cannot afford it.
Some people spend money to surpass their peer group. They may buy more cars or a large house which proves that they are better off than their peers.
Some people spend less money than their peer group. They may invest in stocks and bonds, and have an emergency fund, even though their peers do not.
Some people spend money to keep up with their peer group. They may buy cars or a house that is similar to their peers because they want to fit in.
Unexpected Expenses. How are unexpected expenses and liquidity related? You will find that you typically have unexpected expenses every year. Knowing that fact you should:
build an emergency reserve that is liquid enough for you to cover your unexpected expenses.
have several credit cards to cover your unexpected expenses.
build an emergency reserve using long-term stocks or bonds to cover your unexpected expenses.
pay your bills on time so that you do not have any unexpected expenses.
Changing Your Budget. Suppose you want to change your budget to increase your savings. What could you do?
take out more loans to cover your expenses
reduce your expenses
find a different bank
volunteer
What is a personal balance sheet? The personal balance sheet summarizes:
your net worth (liabilities minus assets).
assets.
what you own, what you owe, and your net worth.
liabilities.
Types of Liabilities. What are liabilities? Define current liabilities and long-term liabilities. Liabilities represent (1) _____________.
debt
assets
income
expenses
Types of Liabilities. What are liabilities? Define current liabilities and long-term liabilities. Current liabilities are:
equal to current assets.
debt that will take longer than a year to pay off.
debt that you will pay off within a month.
debt that you will pay off within a year.
Credit Cards and Spending Psychology. Explain how credit card usage can affect your spending habits.
allows you to spend an unlimited amount of money you don't have and bill your parents.
can create the illusion of high cost and ultimately result in lower levels of spending.
can create the illusion of zero cost and ultimately result in lower levels of spending.
can create the illusion of zero cost and ultimately result in higher levels of spending.
Estimating Net Cash Flow. Angela's disposable income is $2,420. Angela inspects her checkbook and her credit card bills and determines that she has the following monthly expenses: Rent $600 Internet $30 Electricity $110 Water $25 Cellular $50 Groceries $400 Car expenses $250 Health insurance $180 Clothing and personal items $175 Recreation $300 What is Angela's net cash flow?
300
200
500
0
Impact on Net Cash Flow. Angela's monthly disposable income is 2,420.Shehasmonthlyexpensesof 2,120 (including recreational expenses of 300)andnetcashflowof 300 per month. Angela makes a budget based on her personal cash flow statement. In two months, she must pay $375 for tags and taxes on her car.
Angela's net cash flow will decrease by $75 in two months, so she will still have a positive inflow of cash that month.
Angela's net cash flow will decrease by 300intwomonths.Shemighttaketheamountoutofsavings,orshecouldsetaside 37
Angela's cash outflows will exceed her cash inflows by $75 for that month. She might take the amount out of savings, or
Angela's net cash flow will increase by $75 in two months, so she will still have a positive inflow of cash that month.
What are their current liabilities? (Round to the nearest dollar.)
$1,365
$2,150
$980
$1,800
What are their long-term liabilities? (Round to the nearest dollar.)
$61,250
$45,800
$72,400
$55,900
Liability Levels. The Ryan family has 178,350inassets,andthefollowingliabilities:Mortgage 43,500, Car loan 2,750,Creditcardbalance 165, Student loans 15,000,Furniturenote(6months) 1,200. What is their net worth? (Round to the nearest dollar.)
$115,735
$120,000
$110,000
$100,000
To what types of cash flows is the time value of money concept most commonly applied?
single dollar amounts, where both present and future values can be determined.
current household spending.
multiple dollar amounts, where past values can be evaluated.
multiple dollar amounts, where either the present or the future value can be determined.
Present Value. Describe some instances when determining the present value of an amount is useful.
lend someone money.
know how much of your income you can save.
know how much money to set aside today to have money for a vacation in two years.
pay off your loan.
Types of Depository Institutions. Describe and compare the three types of depository institutions. Savings institutions:
accept deposits but focus on providing mortgage and personal loans to individuals rather than commercial clients.
accept deposits in checking and savings accounts and make loans to both personal and commercial clients.
focus on making loans to institutions.
are nonprofit organizations that accept deposits and provide personal and mortgage loans only to their members.
Types of Depository Institutions. Describe and compare the three types of depository institutions. Commercial banks:
are nonprofit organizations that accept deposits and provide personal and mortgage loans only to their members.
accept deposits but focus on providing mortgage and personal loans to individuals rather than commercial clients.
accept deposits in checking and savings accounts and make loans to both personal and commercial clients.
focus on making loans to institutions.
44. Types of Depository Institutions. Describe and compare the three types of depository institutions. Credit unions:
accept deposits in checking and savings accounts and make loans to both personal and commercial clients.
focus on making loans to institutions.
accept deposits but focus on providing mortgage and personal loans to individuals rather than commercial clients.
are nonprofit organizations that accept deposits and provide personal and mortgage loans only to their members.
List and describe some of the banking services offered by financial institutions.
personal loans
checking services
providing legal advice
monitoring your account balance
What is the difference between a debit card and a credit card?
A debit card allows you to purchase goods and services on credit, within your credit limits. If you do not pay off your entire balance each month, you will incur a finance charge.
A debit card allows you to purchase goods and services on credit, within your credit limits. There is no finance charge and you are limited only by the funds available in your bank account.
A credit card allows you to purchase goods and services on credit, within your credit limits. If you do not pay off your entire balance each month, you will incur a finance charge. There is no finance charge and you are limited only by the funds available in your bank account.
A credit card allows you to purchase goods and services on credit. There is no finance charge and you are limited only by the funds available in your bank account.
Which of the following does depict a special service that banks provide?
Automatic teller machines offer convenient access to cash.
Traveler's checks, which are a safe way to carry money when you travel.
Money orders, which are a safe way to send money.
Safety deposit boxes, which are used to store important documents or jewelry.
All of the above.
When making banking decisions, why should you be concerned about current interest rates?
affect neither your cash inflows nor your cash outflows.
affect the amount of interest you would receive on deposits and the amount of interest you would pay on borrowing.
affect future interest rates.
can be predicted accurately.
What is a risk-free rate? Give an example of an investment with a risk-free rate. Why is there no risk? A risk-free rate is:
an interest rate guaranteed on an investment for an unspecified period.
an interest rate that is not guaranteed on an investment for an unspecified period.
an interest rate that is not guaranteed on an investment for a specified period.
an interest rate guaranteed on an investment for a specified period.
What is a risk-free rate? Give an example of an investment with a risk-free rate. Why is there no risk?
pays an interest rate guaranteed on an investment for an unspecified period.
could not default.
is a checking account.
would pay investors only if the financial institution went into bankruptcy.
What does it mean to "reconcile your account balance"? Why is it important for you to regularly perform this task?
A. Reconciling your account balance ensures that you have more money in your account than the financial institution says you do
B. Reconciling your account balance ensures that you and the financial institution agree on how much money you have in your account
C. Reconciling your account balance ensures that you have paid all your bills for the month
D. Reconciling your account balance ensures that you and your spouse agree on how much money you have in your account
What does it mean to "reconcile your account balance"? Why is it important for you to regularly perform this task?
A. It also allows you make additional deposits, if necessary
B. Reconciling your account will also help you get a better interest rate from the bank
C. Reconciling your account will help you track your spending to determine exactly where you spend your money
D. It allows you to catch any errors in a timely manner so they can be corrected
Impact of Interest Rate Movements. What effect would a general change in current interest rates have on you as a depositor or borrower?
be paid a lower interest rate.
pay a lower interest rate.
pay a higher interest rate.
be paid a higher interest rate.
What is the difference between a cashier's check and a money order?
a cashier's check is a check written against a financial institution's account to a specific payee. In contrast, a money order is pre-paid.
a cashier's check is a check written against a financial institution's account to a specific payee. In contrast, a money order is pre-paid.
a money order is a check written against a financial institution's account to a specific payee. In contrast, a cashier's check is pre-paid.
a money order is a check written against a financial institution's account to another financial institution. In contrast, a cashier's check is pre-paid.
What are the consequences of his actions?
One of Paul's checks will bounce if he does not make another deposit because he wrote a check for a 185.79stereowhenhisactualbalanceis 463.66 and the stereo will only cost $185.79.
Paul should be fine because his actual balance is 463.66andthestereowillonlycost 185.79.
Which of the following will not vary at a commercial bank?
Service fees
Loan conditions
Limit on FDIC insurance on accounts
Interest rates
Types of Credit. Explain the three types of credit. Under what conditions might a consumer find each type useful? Revolving open-end credit:
requires that borrowers only pay interest in the short term, and the principal at some time in the future.
is issued to consumers for very short periods of time to make specific purchases.
grants varying amounts of credit to consumers based on debt level and credit payment history.
is issued for specific purchases but gives the borrower a longer time to repay the loan.
Cash versus Credit. Why should some people use cash to make purchases instead of credit?
Using cash instead of a credit card causes some people to overspend. These people are better off using a credit card for most purchases.
Using a credit card instead of cash causes some people to overspend. These people are better off using cash for most purchases.
Using a debit card instead of cash causes some people to overspend. These people are better off using cash or a credit card for most purchases.
Using a credit card instead of cash causes some people to underspend. These people are better off using cash for most purchases.
Under what conditions does the Equal Credit Opportunity Act prohibit creditors from denying credit? If you are denied credit, do you have the right to know the reason for the denial? The Equal Credit Opportunity Act prohibits that credit be denied due to all of the following reasons except:
race.
age.
education.
gender.
If you are denied credit, do you have the right to know the reason for the denial?
A. It depends on the type of credit you are seeking.
B. Yes, the applicant must be notified with the reason within 30 days of the denial of a credit application.
C. Yes, the applicant must be notified with the reason within 10 days of the denial of a credit application.
D. No, the application and review is private and no disclosure is required.
Credit Bureaus. Name the three major credit bureaus. The three major credit bureaus are: (Select the best answer below.)
Accountifax, Experian, and Union Credit.
Equifax, Experian, and Union Credit.
Accountifax, LendCheck, and Union Credit.
Equifax, Experian, and Trans Union.
Credit Bureaus. They score your credit rating based on: (Select the best answer below.)
LIFO for credit scoring, which is based on payment history and levels of debt.
FICO for credit scoring, which is based on payment history and levels of debt.
LIFO for credit scoring, which is based on the size of the loan you are trying to get.
FICO for credit scoring, which is based on the size of the loan you are trying to get.
Will all three major credit bureaus always produce the same credit score?
may produce a different score because they calculate it differently.
check with each other to see that they have the same information.
may produce a different score because the information each bureau receives on the credit applicant may vary.
will always produce the same score.
Credit Score. What factors determine your credit score and how are these factors weighted by FICO? One of the factors is used to determine your credit score and how it is weighted by FICO is: (Select the best answer below.)
Amount of monthly credit used is weighted at 15 percent.
Length of creditor relationship and number of inquiries is weighted at 35 percent.
Payment history is weighted at 40 percent.
Length of creditor relationship and number of inquiries is weighted at 15 percent.
Improving Your Credit Score. How can you improve your credit score, and how long can it take to erase a poor credit history? You can improve your credit score by:
making at least the minimum payments.
becoming current with payments.
reducing the debt load.
All of the above.
Negative credit information stays on the record for (1) ____________ years. (Select from the drop-down menu.)
A. 4
B. 5
C. 7
D. 10
Identity theft occurs when any individual:
A. seeks your personal identifying information without your permission.
B. uses your personal identifying information for personal gain without your permission.
C. impersonates you.
D. uses your name as their own.
Identity Theft. What constitutes identity theft? Is identity theft only perpetrated to acquire money, goods, or services? Can identity theft occur through legitimate access to your personal information? Explain.
A. is used to establish fraudulent identities.
B. is used to acquire money, goods, or services, and also to establish fraudulent identities.
C. is used to acquire money, goods, or services.
D. cannot be prosecuted.
What constitutes identity theft? Is identity theft only perpetrated to acquire money, goods, or services? Can identity theft occur through legitimate access to your personal information?
Employees of places you work, bank, go to the doctor, and shop.
Only hackers on the internet.
Identity theft cannot occur through legitimate access.
Identity theft is only about stealing money.
Identity Theft. What constitutes identity theft? Is identity theft only perpetrated to acquire money, goods, or services? Can identity theft occur through legitimate access to your personal information? Explain.
The above statement is true.
The above statement is false.
Responding to Identity Theft. What steps should you take if you become a victim of identity theft? A step you should not take if you become a victim of identity theft is:
Notify the major credit reporting companies.
Open new accounts with an alias.
Request that a fraud alert be placed into your credit file.
Act immediately to ensure that further damage is not incurred.
