Exam #1 - Chapters 1-4
Name
1)
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2) A personal financial plan specifies financial goals and describes
A) saving, investing, and asset valuation.
B) spending, saving, and credit card financing.
C) saving and spending only.
D) spending, financing, and investment plans. .~.
2)
D
3) Which of the following is an example of an opportunity cost?
A) Purchasing automobile insurance
B) Taking a class instead of working at your part-time job
C) Renting an apartmen""htear school
D) Setting aside money for paying income tax
3)
4) All of the following are true with regards to the demand for financial advisors except
A) many people are just not interested in making their own financial decisions.
B) financial matters have become so difficult that making decisions alone is impossible.
C) the law requires that you use them before making investments.
D) many people lack an understanding of personal finance.
4)
5) Which of the following is not an asset?
A) Your textbooks
B) Your house which you E!l!.
C) Your coin collection given to you by your grandfather
D) Your car which you financed
5)
6) Which of the following items is not a liability?
A) The balance due on your credit card
C) Your college loans
6)
D
7)
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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
1) An example of an opportunity
you were in class.
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cost is the wages that you could have earned but did not because
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MULTIPLE CHOICE. Choose the one alternative
that best completes the statement or answers the question.
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B) An IOU to your roommate
D) The wages you give up to take a class
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7) The best measure of a person's or family's J)~lth
is
A) the amount of annual income.
B) the value of what you own minus the value of what you owe.
C) the highest level of education received.
D) their tax bracket.
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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
8) Credit should be used only when necessary, since it usually involves borrowed funds that YOU~~ill
need to pay back with interest. P'I
8)
9) A part of your financial plan should involve a plan for protecting your assets and income through
insurance coverage.
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9)
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B
13
MULTIPLE CHOICE. Choose the one alternative
10)
that best completes the statement or answers the question.
is the process of forecasting future expenses and savings.
A) Planning
B) Budgeting
C) Fortune-telling
11) Budgeting helps set goals by estimating
save and spend.
A) income and expenses
C) liabilities and expenses
B
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D) Predicting
on a monthly basis to determine how much to
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B) net worth and income
D) assets and income
11)
12) Nancy is paid $2,000 biweekly (26 pays per year) in her job as a market researcher. Her expenses
are $400 per month rent on her apartment, $100 per month for food, and $100 per month for
utilities. Nancy also has student loans on which she makes monthly payments of $200. Nancy is
considering the purchase of a new car, but also is very determined to save at least 50% of any
budget surplus each month. If Nancy adheres to this savings plan, how much would she have
available each month for a car payment. Round to the nearest dollar.
A) $1766
B) $1600
C) $3533
D) None since there is a budget deficit
12)
13) Which of the following would not help protect you from unethical or incompetent advice from a
financial adviser?
A) Rely on the adviser as to when to buy and sell
B) Educate yourself on various financial products
C) Know your risk tolerance
D) Ask questions of other clients
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TRUEIFALSE. Write 'T' if the statement is true and 'F' if the statement is false.
14) Net cash flows are the difference between cash inflows and cash outflows and can be either positive
or negative.
14)
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
15) The cash flow statement reports a person's or family's
A) current income and payments.
B) value of investments.
C) plan for borrowing.
D) net worth.
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16) Jim has $1,000 income from his job and goo stock djyjqend income this month. This month Jim has
rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What is his cash
inflow this month?
A) $400
B) $500
C) $1,200
D) $600
16)
17) Jeff has a $1,000 salary and a $100 dividend income this month. This month Jim has rent and
utilities of $300 and he spent $200 on groceries and $100 on clothing. What is his net cash flow this
month?
A) $1,100
B) $500
C) $600
D) $400
17)
18) Cash inflows tend to be the highest in which of the following?
A) First job out of college
B) Retirement
C) College
D) 20 years into a career
18)
2
D
TRUE/F ALSE. Write 'T' if the statement is true and 'F' if the statement is false.
19) A personal cash flow statement is usually the starting point for an individual's
MULTIPLE CHOICE. Choose the one alternative
20) Many individuals tend to
A) not know; accurately know
C) minimize; maximize
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or family's budget.
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19)
that best completes the statement or answers the question.
their cash inflows and
their outflows.
B) overestimate; underestimate
D) underestimate; overestimate
21) In budgeting, it is useful to compare
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21)
with the budgeted amounts to determine the
accuracy or error of the budget and adjust it as necessary.
A) both actual inflows and outflows
B) actual inflows
C) actual outflows
D) current assets
22) Which one of the following is a liquid asset?
A) Real estate
C) Stock held in an IRA
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22)
B) Cash in a savings account
D) A swimming pool
23) Property such as a person's home, car, and furniture is called
A) investment assets.
B) major property assets.
C) liquid assets.
D) household assets.
23)
D
24) The best measure of a person's or family'S wealth is
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A) the amount of salary earned annually.
B) the total dollar value of investment assets.
C) the market value of real estate including the personal home.
D) net worth.
24)
D_
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
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25) The time value of money concept can help you determine how much money you need to save over
a period of time to achieve a specific savings goal.
26) An annuity is a stream of equal payments that are received or paid at equal intervals in time. ~\
MULTIPLE CHOICE. Choose the one alternative
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25)
T
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26)
T
27)
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that best completes the statement or answers the question.
27) Money received today is worth more than the same amount of money received in the future. This is
true because
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A) money received today can grow at a compounded rate.
B) all goods and services are likely to cost more in the future.
C) unique investment opportunities exist today, which may not be available in the future.
D) future inflation will devalue your current investments.
28)
28) The concept of time value of money is based on
A) inflation.
C) taxes.
B) interest earned.
D) the Dow Jones Industrial Average.
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29) The accumulation of interest over time is called
A) compounding.
C) present value.
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B) an annuity.
D) an ordinary annuity.
30) To determine how long it would take an investment to double at 10 percent, you could scan down
the 10% column until you reach a factor of approximately 2.0 on the
table.
A) Future Value of an annuity
B) Future Value of $1
C) Present Value of $1
D) Present Value of an annuity
30)
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32)
D
33)
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34)
T
35)
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31) Which of the following decisions would involve the use of the present value of $1?
A) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year
for 20 years
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B) You want to have $1,000,000 in order to retire at age 55, but need to ~ow how much you will
need to deposit each year from now until your 55th birthday
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C) Your father and mother wish to deposit enough money on the date of your high school
graduation to enable you to take a $7,000 cruise when you graduate from college in 4 years
D) Your brother buys your car and offers to pay you $500 now or $1,500 in two years -fV
32) Which of the following decisions would involve the use of the future value of a $1 ordinary annuity
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A) Your father and mother wish to deposit enough money on the date of your high school C"v
graduation to enable you to take a $7,000 cruise when you graduate from college in 4 years
B) Your brother buys your car and offers to pay you $500 now or $1,500 in two years F-v
C) You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year
for 20 years
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D) You want to have $1,000,000 in order to retire at age 55, but need to know how much you will
need to deposit each year from now until your 55th birthday
33) Don wants to know how much he needs to save every year to amass $15,000 in five years at a 5%
interest rate. What is he calculating using his financial calculator?
A) Present value
B) Future value
C) Payment
D) Interest rate
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TRUEIF ALSE. Write 'T' if the statement is true and 'F' if the statement is false.
34) You utilize present and future value concepts in investment, purchase, and retirement decisions.
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35) To determine how much money you would need to save to withdraw $10,000 a year for five years,
you would use the present value of an annuity tables.
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MULTIPLE CHOICE. Choose the one alternative
that best completes the statement or answers the question.
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36) Yogi Berra Jr. has agreed to play for the New York Mets for $4 million per year for the next 10
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years. What table would you use to calculate the value of this contract in today's doJE-rs?
A) Present value of an annuity
B) Present value of a single amount
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C) Future value of a single amount
D) Future value of an annuity
37) A branch of the U.S. Treasury Department,
A) U.S. Tax Authority
C) U.S. Department of Tax
called the
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B) U.S. Department of Collection
D) Internal Revenue Service
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37)
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D
38) Determining taxes requires you to address all of the following topics except
A) exemptions.
B) gross income.
C) deductions.
D) daily living expenses.
TRUEIF ALSE. Write 'T' if the statement is true and 'F' if the statement is false.
39) Different tax rates are associated with each filing status such as single, married filing jointly, and
head of household.
39)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
40) Jerry is divorced and has two children that live with him. What filing status should Jerry claim on
40)
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his tax return?
A) Single
C) Head of household
B) Married filing separately
D) Married filing jointly
41)
41) All reportable income from any source is called
A) dividend income.
C) interest income.
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B) wages and salaries.
D) gross income.
42) Jane purchased General Motors stock seven years ago for $20,000. In 2012, she sells the stock for
$35,000. What is Jane's gain or loss?
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A) no gain or loss is recognized
B) $15,000 extraordinary
C) $15,000 long-term
D) $15,000 short-term
42)
43) Reductions of gross income for such items as individual retirement accounts (IRAs), moving
expenses, and student loan interest payments will result in
A) adjusted gross income.
B) passive income.
C) taxable income.
D) earned income.
43)
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44)
44)
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45) Purchasing which of the following items on credit will help reduce your tax bill? ~,lOI~-\OS
A) Home
B) Boat
C) Stereo
D) Automobile
45)
A
46) You should claim itemized deductions if
A) the standard deduction exceeds itemized deductions.
B) itemized deductions exceed tax credits.
C) itemized deductions exceed the standard deduction.
D) itemized deductions exceed exemptions.
46)
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are specific expenses instead of a standard amount that reduce adjusted gross income.
A) Itemized deductions
B) Household expenses
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C) Exemptions
D) Tax credits
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C
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47) Melanie, a homeowner, has mortgage interest of $3,000, real estate taxes of $1,500, and charitable
contributions of $500. According to her filing status, a standard deduction of $5,950 is allowed.
How much should Melanie deduct on her tax return?
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C) $5,950
A) $5,000
B) $7,700
D) $6,700
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48) Sally's adjusted gross income is $38,000. She does not own a home, but has charitable contributions
of $1,500 and interest on her car of $2,100. This year she also had medical expenses of $2,000. She is
allowed a standard deduction of $5,950 and one personal exemption of $3,800. What is Sally's
taxable income?
A) $29,200
B) $28,250
C) $38,000
D) $31,300
48)B
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
49) The key tax planning decisions in building your financial plan are knowing what tax savings are
currently available to you and how you can increase your tax savings in the future.
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49)
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
50) A allowable amount which taxpayers can claim for themselves and dependents is called a(n)
A) exemption.
B) exclusion.
C) deduction.
D) allowance.
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