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Exam 1: Personal Finance Basics and the Time Value of Money

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Question 1

True/False

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Personal opportunity costs refer to time,effort,and health that are given up when a decision is made.

A) True
B) False

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Question 2

Multiple Choice

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The main goal of personal financial planning is managing your money to:

A) save and invest for future needs.
B) reduce a person's tax liability.
C) achieve personal economic satisfaction.
D) spend to achieve financial objectives.
E) save,spend,and borrow based on current needs.

F) A) and E)
G) A) and D)

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Question 3

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Patrick Jones is interested in purchasing a 65" LED TV for his living room.He knows that right now the TV will cost approximately $500.However,Patrick is a little concerned about his job.Patrick 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 Patrick worried about?

Higher interest rates can be caused by:

Inflation is likely to result from:

If you are concerned about year-end tax payments and need an action plan,you may take the following action(s) :

Sophia Martin is assessing her balances.She expects to 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?

Benjamin is planning to go to graduate school in a program that will take three years.Benjamin wants to have $10,000 available each year for his school and living expenses.If he earns 6% on his investments,approximately how much must be deposited at the start of his studies for him to withdraw $10,000 a year for three years?

Natalie Smith is considering investing in 30-year corporate bonds issued by Duke Energy Company.She knows that she will earn an interest rate of 6% by purchasing these bonds.However,she is concerned because she might need to take her money out of this investment in a year,and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for.What type of risk is Natalie concerned about?

Lenders benefit more than borrowers in times of high inflation.

Patrick Jones is interested in purchasing a 65" LED TV for his living room.Patrick knows that right now the TV will cost approximately $500.He 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 $800.Which type of risk is Patrick worried about?

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

One aspect of financial planning is to use credit appropriately/wisely.Which component of financial planning does this deal with?

Natalie Smith is trying to decide whether to keep her money in a savings account or in a mutual fund.What would you tell her to help her analyze her decision?

What types of risks are commonly associated with personal financial decisions? How can these risks be evaluated and minimized to reduce personal and financial difficulties?

The uncertainty associated with every decision is referred to as:

Personal financial activities involve the following main decision areas:

Sophia Martin has decided to retire 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.Which step in the financial planning process does this scenario demonstrate?

Opportunity cost refers to:

Evaluating risk associated with making most financial decisions is difficult because of what factor(s) ?