Chapter 01 - Personal Financial Planning in Action

Chapter 01
Personal Financial Planning in Action

True / False Questions

1. (p. 3) Personal financial planning is the process of managing your money to achieve personal
economic satisfaction.
TRUE
Definition

Bloom's: Knowledge
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Learning O!ecti"e: #
$opic: %inancial &lanning

2. (p. ') A financial plan is an informal report that analyzes past financial decisions.
FALSE
Financial plan is a formal report that summarizes present conditions analyzes financial needs
and recommends future financial activities.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: #
$opic: %inancial &lanning

!. (p. ') A financial plan is another name for a "udget.
FALSE

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: #
$opic: %inancial &lanning

1-1
Chapter 01 - Personal Financial Planning in Action
#. (p. ') Financial Plans are only created "y financial planners.
FALSE
Plans are created "y individuals as $ell as "y financial planners.

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: #
$opic: %inancial &lans

%. (p. )) &he life situation of a household has little influence on personal financial planning
decisions.
FALSE
'(hi"it 1-1

Bloom's: *ompre+ension
Difficulty: Easy
Learning O!ecti"e: #
$opic: Life ,ituation

). (p. )) &he long-term goals for a young single $ill pro"a"ly "e the same as those for an older
couple $ith no dependent children at home.
FALSE
*nferred ans$er "ased on specifics of goals discussed on page %.

Bloom's: -nalysis
Difficulty: Easy
Learning O!ecti"e: .
$opic: /oal0setting /uidelines

1-2
Chapter 01 - Personal Financial Planning in Action
+. (p. 1) *nflation is most harmful to people $ith incomes e(pected to increase.
FALSE
*nflation is most harmful to people living on fi(ed incomes.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: #
$opic: Economics

,. (p. 1) *nflation reduces the "uying po$er of money.
TRUE

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: #
$opic: 2nflation

-. (p. 1) .hen prices are increasing at a rate of ) percent the cost of products $ould dou"le in
a"out 12 years.
TRUE
/se the 0ule of +2.

Bloom's: *ompre+ension
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$opic: 2nflation

10. (p. 3) 1igher inflation usually results in lo$er interest rates.
FALSE

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$opic: 2nflation

1-!
Chapter 01 - Personal Financial Planning in Action
11. (p. 3) Developing a "udget is part of the 2spending2 component of financial planning.
FALSE
*t is part of the 2planning2 activity.

Bloom's: *ompre+ension
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Learning O!ecti"e: #
$opic: %inancial planning acti"ities

12. (p. 4) 0etirement planning includes thin3ing a"out your housing situation recreational
activities and possi"le volunteer or part-time $or3.
TRUE

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$opic: %inancial planning acti"ities

1!. (p. 5) 4hort-term goals are usually achieved $ithin the ne(t year or so.
TRUE

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1#. (p. 5) *ntermediate goals are usually achieved $ithin the ne(t year or so.
FALSE
*ntermediate goals are to "e met in 2 to % years.

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Difficulty: Easy
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1-#
Chapter 01 - Personal Financial Planning in Action
1%. (p. 5) Purchasing a car is an e(ample of a consuma"le-product goal.
FALSE
Purchasing a car is a dura"le-product goal.

Bloom's: *ompre+ension
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Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1). (p. #6) Purchasing a car is an e(ample of a dura"le-product goal.
TRUE

Bloom's: *ompre+ension
Difficulty: Easy
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1+. (p. #.) 5pportunity costs refer to money already spent.
FALSE
An opportunity cost is the time money or resource given up $hen a decision is made.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: 3
$opic: Opportunity costs

1,. (p. #.) 5pportunity costs refer to time money and other resources that are given up $hen a
decision is made.
TRUE

Bloom's: *ompre+ension
Difficulty: (edium
Learning O!ecti"e: 3
$opic: Opportunity costs

1-%
Chapter 01 - Personal Financial Planning in Action
1-. (p. #.) *nterest earned is calculated "y multiplying the principle times the opportunity cost.
FALSE
*nterest earned e6uals principal rate time.

Bloom's: *ompre+ensions
Difficulty: (edium
Learning O!ecti"e: '
$opic: %inancial Opportunity *osts

20. (p. #5) 0is3s associated $ith most financial decisions are easy to measure.
FALSE

Bloom's: *ompre+ension
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es


Multiple Choice Questions

21. (p. ') A formalized report that summarizes your current financial situation analyzes your
financial needs and recommends a direction for your financial activities is a7n8
A. *nsurance prospectus.
B Financial plan.
C. 9udget.
D. *nvestment forecast.
'. 4tatement.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: #
$opic: 7our Life ,ituation and %inancial &lanning

1-)
Chapter 01 - Personal Financial Planning in Action
22. (p. ' and 5) &he ma:or function of a financial plan is to
A. 0educe ta(es.
9. *ncrease savings.
C Achieve financial goals.
D. *mprove your credit rating.
'. 5"tain ade6uate insurance protection.

Bloom's: *ompre+ension
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Learning O!ecti"e: #
$opic: 7our Life ,ituation and %inancial &lanning

2!. (p. ') An advantage of personal financial planning is;
A. &he use of lo$-interest savings
9. *ncreased impulse spending
C *ncreased control of financial affairs
D. <ore credit card de"t
'. =ess monitoring of investments

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$opic: -d"antages of personal financial planning

2#. (p. ') &he stages that an individual goes through "ased on stages in the family and financial
needs is called the
A. Financial planning process
9. 9udgeting procedure
C. Personal economic cycle
! Adult life cycle
'. &a( planning process

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$opic: -dult life cycle

1-+
Chapter 01 - Personal Financial Planning in Action
2%. (p. )) 4ally 4mith>s friends have told her that they thin3 she should consider a visit to a
personal financial planner. .hy do you thin3 her friends made the suggestion?
A. 4ally usually saves 10 percent of her paychec3 for long-term goals.
9. 4ally has no credit card de"t.
C. 4ally trac3s her investments and ma3es changes to her allocations once per year.
! 4ally plans to 6uit her :o" and volunteer for local organizations.
'. 4ally has used a "udget for years.
4ally>s :o" loss $ill affect her financial situation. 1er income e(penses insurance coverage
and investing may all "e affected.

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$opic: 8easons for financial planning

2). (p. )) @ohn @ones $as laid off of his :o" t$o months ago. 1e :ust received an offer for a
position that pays 2A! the salary of his old :o". .hy should he set up a financial plan?
A &o increase the effectiveness of o"taining using and protecting his financial resources.
9. &o decrease control of his financial affairs regarding de"t.
C. &o accept the loss of freedom from financial $orries due to his ne$ position.
D. &o learn ho$ to manage $ith less savings.
'. &o find out $hy he $as laid off.

Bloom's: -pplication
Difficulty: (edium
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$opic: 8easons for financial planning

2+. (p. 1) &he consumer price inde( reflects;
A. &he prices of products and services in the /nited 4tates
9. &he prices of products and services around the $orld
C &he change in prices of products and services of ur"an consumers
D. &he change in prices of products and services around the $orld
'. Bone of the a"ove

Bloom's: *ompre+ension
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$opic: 2nflation

1-,
Chapter 01 - Personal Financial Planning in Action
2,. (p. 1) &he inflation rate for a household $ill "e;
A. Creater than the inflation rate as reported "y the CP* since the inde( e(cludes the product
or service $ith the highest inflation rate for the past 12 months
9. =o$er than the inflation rate as reported "y the CP* since the inde( e(cludes the product or
service $ith the lo$est inflation rate for the past 12 months
C. '6ual to the inflation rate as reported "y the CP* since it includes all products and services
$hether or not the prices have changed in the past 12 months
! 'ither greater than or less than the inflation rate as reported "y the CP* depending on the
household>s 2"as3et2 of goods and services purchased
'. Dero since the CP* does not measure consumer price changes

Bloom's: -nalysis
Difficulty: 9ard
Learning O!ecti"e: #
$opic: 2nflation

2-. (p. 1) &he 0ule of +2 is;
A. A tool to determine the num"er of years until retirement for an employee
B /sed to estimate ho$ long it ta3es for prices to dou"le using a given annual inflation rate
C. &he legal code for re6uiring companies to provide a match on retirement savings
D. /sed to calculate interest rates for savings
'. &he num"er of steps re6uired to complete a financial plan

Bloom's: Knowledge
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$opic: 2nflation

!0. (p. 1) .ho is most li3ely to "enefit "y inflation?
A. 0etired people
9. =enders
C 9orro$ers
D. =o$-income consumers
'. Covernment

Bloom's: *ompre+ension
Difficulty: (edium
Learning O!ecti"e: #
$opic: 2nflation

1--
Chapter 01 - Personal Financial Planning in Action
!1. (p. 103) 1igher consumer prices are li3ely to "e accompanied "y
A. =o$er union $ages
9. =o$er interest rates
C. =o$er production costs
! 1igher interest rates
'. 1igher e(ports

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: #
$opic: 2nflation:2nterest rates

!2. (p. 3) An investor should e(pect to receive a ris; premium for
A. '(panded e(ports
9. =o$er consumer prices
C 1igher potential earnings due to uncertainty
D. 0educed availa"ility of investments
'. '(pected lo$er inflation

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: #
$opic: 2nterest rates

!!. (p. 3) .hich of the follo$ing $ould increase the interest rate for a loan?
A Poor credit rating
9. 1igher do$n payment
C. Constant interest rates
D. =o$er consumer prices
'. 4hort time to maturity

Bloom's: *ompre+ension
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Learning O!ecti"e: #
$opic: 2nterest rates

1-10
Chapter 01 - Personal Financial Planning in Action
!#. (p. 3) Patric3 Cuitman recently graduated from college $ith E20000 in student loans and
E%000 in credit card de"t. 1e usually ma3es minimum payments on his de"t and he has "een
late $ith three payments in the last year. 1e $ants to "uy a ne$ car "ut $as told that his
interest rate on a loan $ould "e very high. .hat is the most li3ely reason this might "e so?
A. Ceneral interest rates are very lo$
B 1is credit rating is poor "ecause of his late payments
C. 1e already has a student loan outstanding
D. 0ecent graduates are not allo$ed to have more than E2%000 in de"t outstanding
'. *nterest rates must "e tied to the CP*

Bloom's: -pplication
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$opic: 2nterest rates

!%. (p. 3) Attempts to increase income are part of the FFFFFFFFFFFFF component of financial
planning.
A 5"taining
9. Planning
C. 4aving
D. 9orro$ing
'. 4pending

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$opic: %inancial planning acti"ities

!). (p. 304) &he G"orro$ing> activity in a financial plan relates to
A. Ac6uiring ade6uate insurance coverage
9. *nvesting for long-term gro$th
C. 4etting up a "udget
D. 5"taining financial resources from employment investments or o$nership
E <aintaining control of credit-"uying ha"its

Bloom's: Knowledge
Difficulty: Easy
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$opic: %inancial planning acti"ities

1-11
Chapter 01 - Personal Financial Planning in Action
!+. (p. 4) &he pro"lem of "an3ruptcy is associated $ith poor decisions in the FFFFFFFFFFFFFF
component of financial planning.
A. 4haring
9. 4avings
C. 5"taining
! 9orro$ing
'. Protecting

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: #
$opic: %inancial planning acti"ities

!,. (p. 3) A 6uestion associated $ith the saving component of financial planning is;
A Do you have an ade6uate emergency fund?
9. *s your $ill current?
C. *s your investment program appropriate to your income and ta( situation?
D. Do you have a realistic "udget for your current financial situation?
'. Are your transportation e(penses minimized through careful planning?

Bloom's: *ompre+ension
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$opic: %inancial planning acti"ities

!-. (p. 5 0 ##) .hich of the follo$ing s+ort0term goals is stated most clearly?
A 9uy a car for less than E1+000 $ithin ) months
9. 0etire at age )% $ith E2000000 in my #01738 account
C. Purchase a house $ith a mortgage no greater than E1%0000 $ithin % years
D. 4et up an emergency fund
'. *nvest E%0 per month for the ne(t 1, years for my nephe$>s college fund
&he only complete short-term goal listed is A. 9 and ' are long-term goals. C is an
intermediate goal. D is a short-term goalH ho$ever it is not measura"le and does not have a
time limit.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1-12
Chapter 01 - Personal Financial Planning in Action
#0. (p. 5 0 ##) .hich of the follo$ing long0term goals is stated most clearly?
A. 9uy a car for less than E1+000 $ithin ) months
9. 0etire at age )%
C. Purchase a house $ith a mortgage no greater than E1%0000 $ithin ! years
D. 4et up an emergency fund
E *nvest E%0 per month for the ne(t 1, years for my nephe$>s college fund
&he only complete long-term goal listed is '. A is a short-term goal 9 is a long-term goal
ho$ever it is not measura"le and does not have a time limit C is an intermediate goal. D is a
short-term goal that is not measura"le and does not have a time limit.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

#1. (p. 5 0 ##) .hich of the follo$ing intermediate goals is stated most clearly?
A. 9uy a car for less than E1+000 $ithin ) months
9. 0etire at age )% $ith E2000000 in my #01738 account
C Purchase a house $ith a mortgage no greater than E1%0000 $ithin ! years
D. 4et up an emergency fund
'. *nvest E%0 per month for the ne(t 1, years for my nephe$>s college fund
&he only complete intermediate term goal listed is C. A is a short-term goalH 9 and ' are long-
term goals. D is a short-term goal that is not measura"le and does not have a time limit.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

1-1!
Chapter 01 - Personal Financial Planning in Action
#2. (p. #60##) .hich of the follo$ing goals $ould "e the easiest to implement and measure?
A. *nvest E2000 a year for retirement.
9. 0educe our de"t payments.
C. 4ave funds for an annual vacation.
! 4ave E100 a month to create a E#000 emergency fund.
'. 4pend less each month.

Bloom's: -pplication
Difficulty: (edium
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$opic: /oal0setting /uidelines

#!. (p. 5) &he goal of investing E%0 per month for the ne(t 1, years for your nephe$>s college
fund is a7n8 FFFFFFFFFF goal.
A. 4hort-term
9. *ntermediate
C =ong-term
D. *ntangi"le
'. Dura"le

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: .
$opic: $ypes of %inancial /oals

##. (p. 5) <any Americans have money pro"lems "ecause of
A Poor planning and $ea3 money management ha"its
9. &oo many clearly defined goals
C. Proper use of credit
D. Bot enough advertising to ma3e effective decisions
'. Controlled spending

Bloom's: *ompre+ensions
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$opic: /oals

1-1#
Chapter 01 - Personal Financial Planning in Action
#%. (p. #60##) Fran Cardner has a goal of 2saving E2% per month for a &I.2 Fran>s goal lac3s
A. <easura"le terms
9. A realistic perspective
C. 4pecific actions
D. A tangi"le end
E A time frame

Bloom's: *ompre+ensions
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$opic: /oal0setting /uidelines

#). (p. 50#6) .hich of the follo$ing is correct?
A. A home purchase is a consuma"le-product goal
9. 'ntertainment is a dura"le-product goal
C. Appliances and sporting e6uipment are intangi"le-purchase goals
D. =eisure and education are dura"le-product goals
E Food and clothing are consuma"le-product goals

Bloom's: *ompre+ension
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$opic: $ypes of %inancial /oals

#+. (p. #6) FFFFFFFFF goals relate to infre6uently purchased e(pensive items.
A. 4hort-term
9. *ntangi"le-purchase
C Dura"le-product
D. Consuma"le-products
'. *ntermediate

Bloom's: *ompre+ension
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$opic: $ypes of %inancial /oals

1-1%
Chapter 01 - Personal Financial Planning in Action
#,. (p. ##) &o develop a financial plan one should
A. 4et several general goals for the short-term
9. 5nly set long-term goals after short-term goals have "een accomplished
C. Focus on intermediate goals first
! *dentify specific realistic goals along $ith the time frame and an action plan
'. Bot $orry a"out $hether or not the goals can "e achieved "ased on one>s income and life
situation

Bloom's: -nalysis
Difficulty: 9ard
Learning O!ecti"e: .
$opic: /oal0setting /uidelines

#-. (p. #.) &he goal of purchasing a long-term care insurance policy $ould "e most appropriate
for
A. A young couple $ithout children.
9. A single mother $ith a preschool daughter.
C. A recent college graduate.
! A single adult nearing retirement age.
'. An e(tremely $ealthy e(ecutive.
4ee Concept Chec3 for similar pro"lem

Bloom's: -pplication
Difficulty: (edium
Learning O!ecti"e: .
$opic: /oal0setting /uidelines

%0. (p. #.) 5pportunity cost refers to
A. <oney needed for ma:or consumer purchases.
B &he trade-off of a decision.
C. &he amount paid for ta(es $hen a purchase is made.
D. Current interest rates.
'. 'valuating different alternatives for financial decisions.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: 3
$opic: Opportunity costs

1-1)
Chapter 01 - Personal Financial Planning in Action
%1. (p. #.) 0o" 0ed"ird is interested in attending a concert ne(t $ee3end. /nfortunately he is
scheduled to $or3. *f he finds a su"stitute for his shift so he can attend the concert $hat 3ind
of cost is he incurring?
A. Fi(ed
B 5pportunity
C. /ne(pected
D. /navoida"le
'. &angi"le

Bloom's: *ompre+ension
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$opic: &ersonal Opportunity *osts

%2. (p. #.) .hich of the follo$ing is an e(ample of opportunity cost?
A. 0enting an apartment near school
B 4aving money instead of ta3ing a vacation
C. 5rganizing income ta( records
D. Purchasing automo"ile insurance
'. /sing a personal computer for financial planning

Bloom's: -pplication
Difficulty: (edium
Learning O!ecti"e: 3
$opic: &ersonal Opportunity *osts

%!. (p. #.) An e(ample of a personal opportunity cost $ould "e
A. *nterest lost "y using savings to ma3e a purchase.
9. 1igher earnings on savings that must "e 3ept on deposit a minimum of si( months.
C. =ost $ages due to continuing as a full-time student.
! &ime comparing several "rands of personal computers.
'. 1aving to pay a ta( penalty due to not having enough $ithheld from your monthly salary.
&ime is an important personal opportunity cost.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: &ersonal Opportunity *osts

1-1+
Chapter 01 - Personal Financial Planning in Action
%#. (p. #.) &he time value of money refers to
A. Personal opportunity costs such as time lost on an activity.
9. Financial decisions that re6uire "orro$ing funds from a financial institution.
C. Changes in interest rates due to changes in the supply and demand for money in our
economy.
! *ncreases in an amount of money as a result of interest earned.
'. Changing demographic trends in our society.

Bloom's: Knowledge
Difficulty: (edium
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$opic: %inancial Opportunity *osts

%%. (p. #.) 9ecause of interest that can "e earned if * can invest a dollar today it should "e
$orth FFFFFFFFF in the future.
A. =ess
9. &he same as
C <ore
D. 'ither less or the same as
'. 'ither the same as or more

Bloom's: -nalysis
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

%). (p. #.) &o calculate the time value of money $e need to consider all e<cept the
A. Payments.
9. Annual interest rate.
C. =ength of time the money is invested.
! &ype of investment.
'. Principal.

Bloom's: *ompre+ensions
Difficulty: (edium
Learning O!ecti"e: 3
$opic: 2nterest *alculations

1-1,
Chapter 01 - Personal Financial Planning in Action
%+. (p. #. 0 #') Future value computations are also referred to as
A. Discounting.
9. Add-on interest.
C Compounding.
D. 4imple interest.
'. An annuity.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

%,. (p. #. 0 #3) Present value computations are also referred to as
A Discounting.
9. Add-on interest.
C. Compounding.
D. 4imple interest.
'. An annuity.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

%-. (p. #') @a3e @ones $ants to deposit E100 per month into an account earning % percent for the
ne(t # years so he can purchase a used car at that time. .hat type of computation $ould he
use to determine the amount he $ill have for his purchase?
A. Present value of a single amount
9. Future value of a single amount
C. 4imple interest
D. Present value of an annuity
E Future value of an annuity

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

1-1-
Chapter 01 - Personal Financial Planning in Action
)0. (p. #') .anda Creen $ants to ta3e out a # year loan to purchase a car. .hat type of
computation $ould she use to calculate her monthly payments?
A. Present value of a single amount
9. Future value of a single amount
C. 4imple interest
! Present value of an annuity
'. Future value of an annuity

Bloom's: *ompre+ension
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Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

)1. (p. #3) &im Cali"e received a E%00 gift from his grandparents. 1e $ants to invest this money
for the do$n payment of a house he plans to purchase in ! years. .hat type of computation
should he use?
A. Present value of a single amount
B Future value of a single amount
C. 4imple interest
D. Present value of an annuity
'. Future value of an annuity

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

)2. (p. #3) 0e"ecca Cladyn plans to attend graduate school in % years. 4he thin3s that she $ill
need a total of E!2000 to pay for school and she $ants to save money each month to reach
her goal. .hat type of computation should she use?
A. Present value of a single amount
9. Future value of a single amount
C. 4imple interest
D. Present value of an annuity
E Future value of an annuity

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

1-20
Chapter 01 - Personal Financial Planning in Action
)!. (p. #3) Paul @aco"y $ants to deposit money today for a vacation he plans to ta3e to Asia
after he graduates from Crad 4chool. .hich formula should he use to determine the amount
of money he $ill have availa"le for his vacation?
A Present value of a single amount
9. Future value of a single amount
C. 4imple interest
D. Present value of an annuity
'. Future value of an annuity

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: %inancial Opportunity *osts

)#. (p. #1 0 #3) &he first step of the financial planning process is to
A. Develop financial goals.
9. *mplement the financial plan.
C Analyze your current personal and financial situation.
D. 'valuate and revise your actions.
'. Create a financial plan of action.

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: '
$opic: - &lan

)%. (p. #3) Financial decisions related to income include all e<cept the follo$ing
A. 4pending
9. 4aving
C. 4haring
! &a3ing
'. All of these are financial decisions

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: '
$opic: - &lan

1-21
Chapter 01 - Personal Financial Planning in Action
)). (p. #3) Place the follo$ing steps for a personal financial plan in the proper order;
1. 0evie$ and revise your plan
2. *dentify alternative courses of action
!. Create and implement your financial action plan
#. Determine your current financial situation
%. 'valuate your alternatives
). Develop your financial goals
A. ) 1 2 % ! #
9. # 2 ) % ! 1
C. ! ) # 2 % 1
! # ) 2 % ! 1
'. ) 2 % # 1 !

Bloom's: -nalysis
Difficulty: 9ard
Learning O!ecti"e: '
$opic: %inancial &lanning &rocess

)+. (p. #5) &he uncertainty associated $ith decision ma3ing is referred to as
A. 5pportunity cost.
9. 4election of alternatives.
C. Financial goals.
D. Personal values.
E 0is3.

Bloom's: Knowledge
Difficulty: Easy
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

1-22
Chapter 01 - Personal Financial Planning in Action
),. (p. #5) &he changing cost of money is referred to as FFFFFFFFFFFF ris3.
A interest-rate
9. inflation
C. economic
D. trade-off
'. personal
*nterest-rate ris3 affects the costs of "orro$ing and the "enefits of saving or investing.

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

)-. (p. #5) &he rising of prices that causes changes in "uying po$er is referred to as
FFFFFFFFFFFF ris3.
A. interest-rate
B inflation
C. economic
D. trade-off
'. personal

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

+0. (p. #5) &he loss of a :o" is referred to as FFFFFFFFFFFF ris3.
A. interest-rate
9. inflation
C income
D. trade-off
'. personal

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

1-2!
Chapter 01 - Personal Financial Planning in Action
+1. (p. #5) &he tangi"le and intangi"le factors that create a less than desira"le situation is
referred to as FFFFFFFFFFFF ris3.
A. interest-rate
9. inflation
C. economic
D. trade-off
E personal

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

+2. (p. #5) &he potential for difficulty to convert an investment to cash is referred to as
FFFFFFFFFFFF ris3.
A. interest-rate
9. inflation
C. economic
D. trade-off
E li6uidity

Bloom's: Knowledge
Difficulty: (edium
Learning O!ecti"e: '
$opic: E"aluate your -lternati"es

+!. (p. .#) Changes in income values and family situation ma3e it necessary to
A 'valuate and revise your actions.
9. *mplement the financial plan.
C. Develop financial goals.
D. Analyze your current personal and financial situation.
'. Create a financial plan of action.

Bloom's: *ompre+ension
Difficulty: Easy
Learning O!ecti"e: '
$opic: %inancial &lanning &rocess

1-2#
Chapter 01 - Personal Financial Planning in Action
+#. (p. .6) &he step in the personal financial planning process that follo$s 2Create and
implement your financial action plan2 is
A 0evie$ and revise your plan
9. *dentify alternative courses of action
C. Determine your current financial situation
D. 'valuate your alternatives
'. Develop your financial goals

Bloom's: *ompre+ension
Difficulty: (edium
Learning O!ecti"e: '
$opic: &ersonal %inancial &lan

+%. (p. .6) /sing the services of financial institutions or specialists 7such as insurance agents or
investment "ro3ers8 $ill "e most evident in your effort to
A. Develop financial goals.
9. 'valuate and revise your actions.
C. Analyze your current personal and financial situation.
! *mplement the financial plan.
'. Create a financial plan of action.

Bloom's: *ompre+ension
Difficulty: 9ard
Learning O!ecti"e: '
$opic: *reate and 2mplement 7our %inancial -ction &lan

+). (p. 1) *f inflation is e(pected to "e , percent ho$ long $ill it ta3e for prices to dou"le?
A. ) years
9. , years
C - years
D. 12 years
'. 1, years
0ule of +2.

Bloom's: *ompre+ension
Difficulty: Easy
Learning O!ecti"e: #
$opic: 2nflation

1-2%
Chapter 01 - Personal Financial Planning in Action
++. (p. #.) *f a E10000 investment increases to E100-0 in one year $hat is its rate of return?
A .- percent
9. 1.0- percent
C. - percent
D. -0 percent
'. 10- percent
7E100-0 - E100008AE10000 J .00- J 0.-K

Bloom's: -pplication
Difficulty: (edium
Learning O!ecti"e: 3
$opic: $ime =alue of (oney

+,. (p. #.) *f a E10000 investment earns a -K annual return $hat should its value "e after one
year?
A. E-000
9. E-100
C. E10000
D. E100-0
E E10-00
E10000 L 71 M .0-8 J E10-00

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: $ime =alue of (oney

1-2)
Chapter 01 - Personal Financial Planning in Action
+-. (p. #3) *f a E10000 investment earns a -K annual return $hat should its value "e after +
years?
A. E%#+
9. E%0!!
C. E-200
! E1,2,0
'. E1,!,0
Correct ans$er uses Future Ialue of E1 ta"le '(hi"it 1-A in the Appendi(;
E10000 L 1.,2, J E1,2,0.
&his can also "e calculated using the FI formula; E10000 L 71 M .0-8N+ J E1,2,0.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: $ime =alue of (oney

,0. (p. #3) *f Patty 4hoema3er estimates that her E+% $ee3ly grocery "ill $ill increase at an
annual inflation rate of !K $hat should her $ee3ly grocery "ill "e in % years?
A. E)#.+!
9. E,2.,%
C E,).-!
D. E!#!.%0
'. E!-,.1,
Correct ans$er uses Future Ialue of E1 ta"le '(hi"it 1-A in the Appendi(;
E+% L 1.1%- J E,).-!.
&his can also "e calculated using the FI formula; E+% L 71 M .0!8N% J E,).-%.

Bloom's: -pplication
Difficulty: 9ard
Learning O!ecti"e: 3
$opic: $ime =alue of (oney

1-2+
Chapter 01 - Personal Financial Planning in Action
,1. (p. #.) Annual earnings on a E2000 Certificate of Deposit earning !.1%K $ould "e
A. E!1
B E)!
C. E12)
D. E2000
'. E2)!0
E2000 L .0!1% J E)!

Bloom's: -pplication
Difficulty: Easy
Learning O!ecti"e: 3
$opic: $ime =alue of (oney

,2. (p. '6) 0andy 1ill $ants to retire in #0 years $ith E2000000. *f he can earn 10K per year
on his investments ho$ much does he need to deposit each year to reach his goal?
A. E#%1,
9. E%000
C. E##1-0
! E%0000
'. Bone of the a"ove
Correct ans$er uses 10K for #0 periods '(hi"it 1-9 ta"le;
Future value J annual deposit L factor J E2000000 J annual deposit L ##2.#-0
Annual deposit J E2000000A##2.#-0 J E#%1,.
&his can also "e solved using computer or calculator functions using the follo$ing varia"les;
B J #0 * J 10 PI J 0 FI J 2000000. 4olve for P<&; E#%1,.,!

Bloom's: -pplication
Difficulty: (edium
Learning O!ecti"e: 3
$opic: $ime =alue of (oney 0 -ppendi<


1-2,