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TABLE OF CONTENTS
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Process.
2. Using Financial Statements and Budgets.
3. Preparing Your Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Your Cash and Savings.
5. Making Automobile and Housing Decisions.
Part III: MANAGING CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Your Life.
9. Insuring Your Health.
10. Protecting Your Property.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds, ETFs, and Real Estate.
Part VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
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Answers at the end of each Chapter
Chapter 01 PFIN8
Indicate whether the statement is true or false.
1. The support of philanthropic organizations is a material item that contributes to our quality of life.
a. True
b. False
2. For employees of large firms, managing employee benefits is an important part of financial planning.
a. True
b. False
3. Commission-based financial planners charge fees based on the complexity of the plan they prepare.
a. True
b. False
4. Short-term planning should include creating and maintaining an emergency fund with at least six months’ worthof
income.
a. True
b. False
5. The decisions you make in career planning are independent of the decisions you make in financial planning.
a. True
b. False
6. Morgan has an annual income of $45,000 and spends $30,000 for current needs. Morgan’s average
propensityto consume is 80 percent.
a. True
b. False
7. Retirement planning includes taking advantage of and managing employer-sponsored benefits.
a. True
b. False
8. Two people with significantly different incomes can have equal average propensities to consume because of
differences in their standard of living.
a. True
b. False
9. In the United States, salaries tend to be higher in the Northeast and West than in the South.
a. True
b. False
10. Financial planning can improve your standard of living.
a. True
b. False
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11. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or a family.
a. True
b. False
12. Fee-only financial planners earn commissions for the products they sell.
a. True
b. False
13. Setting long- and short-term career goals helps in career planning.
a. True
b. False
14. The longer you wait to begin retirement planning, the less you are likely to have in your retirement fund.
a. True
b. False
15. Career plans should not be changed after long- and short-term career goals are set.
a. True
b. False
16. Tangible (physical) assets are earning assets that are held for the returns they promise.
a. True
b. False
17. Financial planning takes place in a dynamic economic environment created by the actions of the government,
business, and consumers.
a. True
b. False
18. You should discuss your financial goals and attitudes toward money with your partner.
a. True
b. False
19. The most effective way to achieve financial objectives is through personal financial planning.
a. True
b. False
20. Geographic factors affect your earning power.
a. True
b. False
21. When you get your first job, you should make a good financial plan that you can follow without making changes
until you retire.
a. True
b. False
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22. Most people tend to be more liberal about their expenditures during a recession or crisis.
a. True
b. False
23. Tax plans are closely tied to investment plans.
a. True
b. False
24. The federal government delegates its regulation of economic activity function to businesses and consumers.
a. True
b. False
25. Living costs are constant throughout the country.
a. True
b. False
26. The average propensity to consume is commonly viewed as a key determinant of standard of living.
a. True
b. False
27. Recessions and financial crises will always result in job loss.
a. True
b. False
28. The need for financial planning declines as your income increases.
a. True
b. False
29. It is easy to change your partner’s financial style, so there is no need for financial planning to resolve conflicts
regarding money matters.
a. True
b. False
30. Accumulating wealth for later years is called estate planning.
a. True
b. False
31. Saving $400 for a large, flat-screen TV within the next four months is an example of a short-term goal.
a. True
b. False
32. You should limit your spending to no more than 20 percent more than what you earn.
a. True
b. False
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33. Marital status affects the income level of individuals.
a. True
b. False
34. Your purchase, saving, investment, and retirement plans and decisions are not influenced by the present state of
the economy.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
35. Which of the following is one of the most emotional issues in any relationship, including that with a partner,
parents, or children?
a. Career choices
b. Hobbies
c. Friends
d. Money
e. Retirement planning
36. Which of the following would be considered real property?
a. Stocks
b. Land
c. Cash
d. Bonds
e. Clothing
37. What type of plans are most helpful in making decisions regarding retirement?
a. Personal financial
b. Insurance
c. Estate
d. Business
e. Spending
38. The three key groups in the economic environment are:
a. government, regulators, and business.
b. government, consultants, and business.
c. consumers, economists, and business.
d. consumers, business, and managers.
e. government, business, and consumers.
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Chapter 01 PFIN8
39. Which of the following statements describes a consumer?
a. A consumer is a member of the business group.
b. A consumer is the central player in the financial planning environment.
c. A consumer is an important force in the government.
d. A consumer is an advocacy group that fights corruption in the government.
e. A consumer is relatively unimportant to business or the government.
40. The consumer price index (CPI) is a measure of:
a. unemployment.
b. inflation.
c. stagnation.
d. recession.
e. saving.
41. Which of the following will legally reduce an investor’s tax liability?
a. Tax evasion
b. Tax shelter
c. Tax penalty
d. Tax accounting
e. Tax portfolio
42. Following an economic trough, the economy will often enter:
a. an expansion.
b. a contraction.
c. deflation.
d. a peak.
e. another trough.
43. Which of the following statements is true of career planning?
a. It does not require any goal setting.
b. It is not related to personal financial planning.
c. It does not influence an individual’s lifetime earnings.
d. It impacts an employer’s stability.
e. It helps in improving professional satisfaction.
44. A trend with a profound effect on people’s standard of living and that requires greater responsibility to
managemoney wisely is the:
a. single-income family.
b. two-income family.
c. investment family.
d. retirement-income family.
e. government.
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45. Which of the following statements about money and relationships is true?
a. It is highly possible to change a partner’s financial style.
b. One of the most important aspects of marriage is financial compatibility.
c. Money does not cause emotional issues in any relationship.
d. The best way to resolve a money dispute is to avoid such a discussion.
e. Financial planning does not help in resolving conflicts related to money.
46. Tax planning is most common among individuals with:
a. low incomes.
b. high incomes.
c. no incomes.
d. erratic incomes.
e. decreasing incomes.
47. The federal government's monetary policy:
a. controls the amount of money in circulation.
b. increases spending for social services, education, defense, and other programs.
c. decreases spending to slow the economy.
d. controls the increase or decrease in taxes.
e. does all of these.
48. Stocks, bonds, and mutual funds are considered what type of assets?
a. Physical
b. Earning
c. Fixed
d. Tangible
e. Real
49. Which of the following would NOT be considered an asset?
a. Savings account
b. Land
c. Credit card balance
d. Jewelry
e. Money market funds
50. Which of the following statements about inflation is true?
a. The most common measure of inflation is the consumer price index (CPI).
b. Since 1980, inflation in the United States has risen dramatically.
c. High inflation is good for interest rates and stock and bond prices.
d. Inflation has no effect on what we earn in our jobs.
e. High rates of inflation tend to drive down the cost of borrowing money.
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51. In what type of plans does an employer allocate a certain amount of money to each employee and lets
theemployee spend that money for benefits that suit them?
a. Cafeteria
b. Fixed-benefit
c. Estate
d. Profit-sharing
e. Saving
52. The stage in which the economy hits a peak is called:
a. expansion.
b. contraction.
c. stagnation.
d. recession.
e. depression.
53. Which of the following is an example of a liquid asset?
a. A mutual fund
b. Stocks
c. An automobile
d. Land
e. A savings account
54. A key determinant of an individual’s quality of life is their:
a. tax bill.
b. financial goals.
c. wealth.
d. motivation.
e. growth potential.
55. Which of the following statements about businesses is true?
a. Businesses provide consumers with goods and services and receive payment in the form of money.
b. Businesses frame rules and regulations to maintain the law and order in a country.
c. Businesses determine the kinds of goods and services that a government will use.
d. Businesses do not interact with other players in the economy.
e. Businesses are seldom affected by economic cycles.
56. In addition to discussing your financial goals with your partner, you must allocate responsibility for what
management tasks and decisions?
a. Skill
b. Stress
c. Household
d. Money
e. Business-cycle
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57. Malik invests $10,000 at a rate of interest of 5 percent for 40 years. Which of the following statements
about the return on the investment is true?
a. Malik will receive more money at the end of 30 years compared to the money received at the end of
40years.
b. Malik will receive more money at a 3 percent rate of interest instead of the existing rate.
c. Malik will receive interest of $5,000 at the end of 10 years.
d. Malik will receive no interest on the investment at the end of the investment period.
e. Malik will receive a significant amount at the end of the investment period, due to the feature of
compounding.
58. Which of the following practices will help in dealing with unexpected negative "financial shocks"?
a. Purchasing low-utility products
b. Accumulating debt
c. Acquiring assets with low financial value
d. Setting up an emergency fund
e. Planning for retirement
59. If your salary increased 4 percent last year and inflation averaged 4 percent, your purchasing power would:
a. have increased.
b. have decreased.
c. have doubled.
d. have remained the same.
e. be impossible to tell.
60. The financial planning process helps in:
a. increasing assets.
b. increasing debts.
c. reducing utility.
d. reducing financial flexibility.
e. increasing financial risk.
61. Which of the following represents a systematic process that considers important elements of an individual’s
financial affairs in order to fulfill financial goals?
a. Conflict resolution
b. Personal financial planning
c. Standard of living
d. Legal counseling
e. Wealth monitoring
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62. Atul is 60 and has a very high net worth. Atul’s most pressing financial concern is probably:
a. asset acquisition planning.
b. liability planning.
c. estate planning.
d. insurance planning.
e. savings planning.
63. The purchase of a car is an example of:
a. consuming.
b. investing.
c. saving.
d. deferring.
e. distributing.
64. When setting financial goals, one should typically start by setting:
a. short-term goals.
b. intermediate goals.
c. long-term goals.
d. goals that are not time-bound.
e. goals that are very aggressive.
65. Individuals who have more formal education tend to do what in comparison to those with lesser degrees?
a. Pay more tax penalty
b. Earn higher annual income
c. Save less money
d. Have less wealth
e. Have careers with less decision-making responsibility
66. Between the ages of 65 and 80, income tends to:
a. increase.
b. decrease.
c. stabilize.
d. fluctuate.
e. decrease and then increase slowly.
67. An important part of the conflict resolution process when there are disputes relating to money matters in
families is known as:
a. life-cycle analysis.
b. personality development.
c. financial planning.
d. personal counseling.
e. stress management.
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68. A carefully developed financial plan should allow for deferred future spending by setting aside a portion of:
a. retirement funds.
b. investment funds.
c. current income.
d. future income.
e. tangible assets.
69. What environment affects the interest rates you pay on your mortgage and credit cards as well as those
youearn on savings accounts and bonds?
a. Economic
b. Educational
c. Technological
d. Social
e. Legal
70. Which of the following is a typical effect of an economic recession?
a. An increase in the standard of living
b. A decrease in unemployment
c. An increase in the expenditure on luxury goods
d. A decrease in the value of retirement accounts
e. An increase in the value of insurance purchased
71. Generally leading to an increase in income potential in one’s career is a person’s:
a. formal education.
b. social status.
c. marital status.
d. corporate loyalty.
e. family size.
72. Which of the following statements about investments is true?
a. As income increases, the need for investment planning decreases.
b. Keeping money idle is a form of investment.
c. Higher returns on investment will lead to the accumulation of less wealth.
d. Investment is measured by the amount of debt incurred.
e. The length of time for which money is invested is important.
73. Which of the following represents the three stages of the financial planning life cycle?
a. Wealth accumulation, wealth preservation, and wealth transfer
b. Wealth accumulation, wealth preservation, and wealth depletion
c. Wealth accumulation, wealth conservation, and wealth transfer
d. Wealth acquisition, wealth transfer, and wealth depletion
e. Wealth accumulation, wealth conservation, and wealth maturation
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74. The amount of goods and services each dollar buys at a given time is called:
a. inflation.
b. the consumer price index (CPI).
c. purchasing power.
d. the gross domestic product (GDP).
e. the opportunity cost.
75. A decrease in the gross domestic product (GDP) would indicate that the economy is experiencing:
a. an expansion.
b. a contraction.
c. deflation.
d. stagflation.
e. a growth spurt.
76. Which of the following is a reason for a decrease in the average propensity to consume with an increase
inincome?
a. The amount of savings decreases, and the consumption of necessities increases.
b. The expenditure on luxury goods increases, and the amount of savings decreases.
c. The expenditure on luxury goods represents only a small portion of income.
d. The amount of savings represents only a small portion of income.
e. The cost of necessities represents only a small portion of income.
77. When applying for a job within a large nationwide company, you notice that salaries for the same position differ
based on geographic region. In which of the following regions would you most likely receive the highest salary?
a. Small town in the Midwest
b. Metropolitan area in the Northeast
c. Rural area in the West
d. Metropolitan area in the South
78. Estate planning involves:
a. considering how your wealth can be most effectively passed on to your heirs.
b. determining the income you need to maintain.
c. the dissolution of all privately held corporations.
d. the valuation and auctioning of your valuables by hiring a professional tax planner.
e. planning for retirement.
79. A strong economy leads to:
a. a low gross domestic product (GDP).
b. high tax percentages.
c. high employment opportunities.
d. low tax penalty rates.
e. a low value of retirement accounts.
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80. Which of the following age groups tends to have the highest earnings?
a. 18–24
b. 25–34
c. 35–44
d. 45–64
e. 65 and older
81. What does an economy experience after a peak?
a. A convolution
b. An expansion
c. A contraction
d. Recovery
e. Prosperity
82. Neha graduated with a master’s degree in personal financial planning. After working for two years in a small
financial planning firm, Neha earns $85,000 annually and saves $5,000 a year after spending on current
needs.What is Neha’s average propensity to consume?
a. 5 percent
b. 25 percent
c. 60 percent
d. 88 percent
e. 94 percent
83. The best way for a family to resolve money disputes is to:
a. ensure that only one person in the family makes decisions regarding money.
b. consistently communicate openly about money matters with family members.
c. ensure that individuals do not interfere in other family members’ financial matters.
d. use a third party, who is not a part of the family, to settle disputes.
e. maintain confidentiality regarding the reasons behind specific decisions.
84. Which of the following financial goals is most useful for developing a financial plan?
a. Make a $12,000 down payment on an automobile in four years.
b. Retire with a comfortable lifestyle in 25 years.
c. Buy a $125,000 house.
d. Purchase a $40,000 boat.
e. Join a county club upon retirement in 20 years.
85. Which of the following practices helps an individual survive in a financial crisis?
a. Spending more than their earnings to maintain a good lifestyle
b. Investing small amounts regularly to achieve long-term financial goals
c. Establishing an emergency fund with six months’ worth of income
d. Developing financial plans only after reaching the highest tax brackets
e. Hiring a noncertified financial planner
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86. Personal financial planning is important because it:
a. controls inflation.
b. limits consumption.
c. reduces social disparity.
d. results in an improved standard of living.
e. reduces economic differences among individuals.
87. An individual’s quality of life is closely tied to their:
a. political orientation.
b. charitable contributions.
c. pollution control efforts.
d. standard of living.
e. educational qualifications.
88. Tax planning is most commonly done to:
a. determine the tax penalty.
b. evade taxes.
c. minimize taxes.
d. pay taxes the person considers to be fair.
e. learn the tax code.
89. Money is an important motivator of personal behavior due to its strong effect on:
a. self-image.
b. productivity.
c. relationships.
d. attitude.
e. self-esteem.
90. Which of the following statements about the earning power of an individual is true?
a. Income varies across different geographic locations due to varying costs of living.
b. Heads of households who have less formal education earn more.
c. Career planning does not help in improving earning potential.
d. People who are very old have high incomes.
e. Marital status has no impact on an individual’s personal income.
91. Which of the following statements about setting long-term goals is true?
a. The goals should be very ambitious.
b. The goals should be realistic.
c. The goals should be attainable in six months to a year.
d. The goals should be easy to meet.
e. The goals should be set and remain unchanged.
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92. The government places constraints on the personal financial environment by the use of:
a. leverage policy.
b. taxation.
c. competition.
d. budgetary deficits.
e. the free-enterprise system.
93. An example of the purchase of a financial asset would be the purchase of
a. a painting.
b. stocks.
c. a car.
d. jewelry.
e. a vacation home.
94. What is the term for the net total value of all the items that an individual owns?
a. Wealth
b. Propensity to consume
c. The consumer price index (CPI)
d. Purchasing power
e. Credit debt
95. Which of the following statements about Amal is true if the inflation rate is increasing every year by 1 percent
and there is no growth in Amal’s salary?
a. Amal can afford to buy more luxury items as prices go down.
b. Amal’s purchasing power will decrease.
c. Amal’s employment opportunities will increase.
d. The lack of growth in Amal’s salary will increase the average inflation rate.
e. Amals cost of borrowing will be reduced.
96. Which of the following is true of professional financial planners?
a. They provide services on a fee or commission basis.
b. They provide services to wealthy investors only.
c. They set the financial goals of retired investors.
d. They make financial decisions for investors.
e. They are most effective during retirement years.
97. Something we owe and that is measured by the amount of debt we incur is:
a. an asset.
b. an estate.
c. a liability.
d. insurance.
e. a goal.
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98. Employee benefits may include all of the following EXCEPT:
a. asset purchases.
b. life insurance.
c. child care assistance programs.
d. pension plans.
e. subsidized food services.
99. Which of the following are included in employee benefit plans?
a. Career plans
b. Retirement plans
c. Tax deferment plans
d. Personal asset plans
e. Bankruptcy recovery plans
100. Financial plans include setting goal dates, which are dates in the:
a. future when the goals are expected to be achieved.
b. future when the goals will be compared with other goals that have already been achieved.
c. past when the goals were revised and redefined.
d. past when the goals were set.
e. future when the goals will be discussed with family members.
101. The best way to achieve your financial objectives is to:
a. have a luxurious standard of living.
b. spend your money at once to reach your objectives swiftly.
c. develop a sound financial plan.
d. create a good tax deferment strategy.
e. monitor your spending.
102. Financial planning helps us:
a. control inflation.
b. have flexibility to handle job loss.
c. control unemployment rates.
d. obtain a Social Security number.
e. decrease national debt.
103. Salaries vary across geographical areas because of what type of costs?
a. Legal
b. Living
c. Social
d. Psychological
e. Technological
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104. The average propensity to consume refers to:
a. the dollars of income spent on luxury goods.
b. the dollars of income saved by an individual.
c. expenditures on the basic necessities of life.
d. the percentage of income spent for current needs.
e. the fact that people with higher propensity to consume earn lower income.
105. Managing life, health, and disability insurance is an important part of what type of planning?
a. Asset acquisition
b. Tax
c. Retirement
d. Estate
e. Employee benefit
106. Typically, an individual’s salary will be lower if they live in what type of area?
a. Metropolitan
b. Overpopulated
c. Industrial
d. Rural
e. Well-developed
107. The last step in the financial planning process is to:
a. develop financial plans and strategies to achieve goals.
b. use financial statements to evaluate results of plans and budgets, taking corrective action as required.
c. implement financial plans and strategies.
d. redefine goals and revise plans and strategies as personal circumstances change.
e. periodically develop and implement budgets to monitor and control progress toward goals.
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Answer Key
1. False
2. True
3. False
4. True
5. False
6. False
7. True
8. True
9. True
10. True
11. True
12. False
13. True
14. True
15. False
16. False
17. True
18. True
19. True
20. True
21. False
22. False
23. True
24. False
25. False
26. False
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27. False
28. False
29. False
30. False
31. True
32. False
33. True
34. False
35. d
36. b
37. a
38. e
39. b
40. b
41. b
42. a
43. e
44. b
45. b
46. b
47. a
48. b
49. c
50. a
51. a
52. a
53. e
54. c
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55. a
56. d
57. e
58. d
59. d
60. a
61. b
62. c
63. a
64. c
65. b
66. b
67. c
68. c
69. a
70. d
71. a
72. e
73. a
74. c
75. b
76. e
77. b
78. a
79. c
80. c
81. c
82. e
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83. b
84. a
85. c
86. d
87. d
88. c
89. a
90. a
91. b
92. b
93. b
94. a
95. b
96. a
97. c
98. a
99. b
100. a
101. c
102. b
103. b
104. d
105. e
106. d
107. d
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Indicate whether the statement is true or false.
1. A cash budget uses short-term financial goals to help you reach long-term financial goals.
a. True
b. False
2. It is best to prepare your financial statements at least once a year, ideally when drawing up your budget.
a. True
b. False
3. Financial plans provide direction to annual budgets.
a. True
b. False
4. If Amaia obtains a loan to purchase a car in June, the loan amount will be included as income for the month of
June.
a. True
b. False
5. The cash budget preparation process has four stages: forecasting income, forecasting expenses,
categorizingexpenses, and making adjustments.
a. True
b. False
6. Future value calculations to estimate the funds needed to meet a goal take compounding into account.
a. True
b. False
7. In a budget, “fun money” is for family members to spend as they like.
a. True
b. False
8. The best way to handle inflation in long-term financial planning decisions is first to consider the history of
inflation.
a. True
b. False
9. An income and expense statement provides a measure of financial performance over time.
a. True
b. False
10. It is recommended that you maintain a ledger to summarize all of your financial transactions.
a. True
b. False
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11. A budget is a financial report that forecasts an individual’s current income as a percentage of their
past earnings.
a. True
b. False
12. A cash budget has value only if you use it and keep careful records of actual income and expenses.
a. True
b. False
13. The best way to balance your annual budget is to increase borrowing to cover shortages.
a. True
b. False
14. An individual is said to have a balanced budget when their total income for the year equals or exceeds their
totalexpenses.
a. True
b. False
15. Financial planning is necessary only if an individual earns a lot of money.
a. True
b. False
16. Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial
planning.
a. True
b. False
17. An individual’s auto loan payments are listed as an expense on the income and expense statement.
a. True
b. False
18. The balance sheet shows an individual’s financial condition as of the time the statement is prepared.
a. True
b. False
19. The preparation of a budget is the first step in the personal financial planning process.
a. True
b. False
20. An individual can maintain their personal financial statements using spreadsheet software.
a. True
b. False
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21. Amit lists his gross salary in the income portion of his income and expense statement so he should include the
amount of his income taxes and Social Security taxes withheld from his paycheck in the expenses portion.
a. True
b. False
22. Nominal interest rates are not adjusted for inflation.
a. True
b. False
23. Net income should be used when preparing an income and expense statement.
a. True
b. False
24. Estimating expenses using actual expenses from previous years and tracking current expenses make the task of
preparing a cash budget easier.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
25. Inflation is expected to be 3% in the coming year. If Caleb earned $45,000 this year, how much must he earn in
the following year to keep up with inflation and maintain a balance between his income and his increasing
expenditures?
a. $45,850
b. $46,250
c. $46,350
d. $47,850
e. $48,250
26. If your total assets equal $87,000 and your total liabilities equal $10,000, your solvency ratio
is: a. 11.5%.
b. 13.0%.
c. 77.0%.
d. 87.0%.
e. 88.5%.
27. Which of the following statements regarding liabilities is true?
a. Liabilities are generally classified according to maturity.
b. Most loans fall into the category of short-term liabilities.
c. Future interest payments are accounted for separately as long-term liabilities on the balance sheet.
d. All liabilities should be recorded on the balance sheet at their current fair market value.
e. Whether or not a liability must be repaid in the future depends on its source.
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28. Total assets on your balance sheet are $6,000 and liabilities are $2,000. Your solvency ratio will
be:a. 30.2%.
b. 33.3%.
c. 66.7%.
d. 85.0%.
e. 75.0%.
29. A balance sheet provides a statement of one’s financial:
a. position.
b. performance.
c. goals.
d. ratios.
e. history.
30. Which of these are considered to be variable expenses?
a. Interest payments
b. Medical expenses
c. Rent payments
d. Insurance premiums
e. Cable TV fees
31. If your statement of income and expense prepared on a cash basis shows a deficit, you have:
a. increased your debts.
b. liquidated your investments.
c. increased your savings.
d. taken a cash loan on your insurance.
e. sold some securities.
32. Binh and Anja have a monthly gross income of $5,000. They pay $1,000 per month toward taxes and $2,000
permonth toward various loans. What is their debt service ratio?
a. 20%
b. 30%
c. 40%
d. 50%
e. 60%
33. If your liquid assets equal $15,000 and your current debts equal $50,000, your liquidity ratio
is:a. 30%.
b. 70%.
c. 143%.
d. 233%.
e. 333%.
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34. The Sunams will need $80,000 annually for 20 years during their retirement. How much will they have at
retirement if they can earn a 4% rate of interest on their investment?
a. $975,675.34
b. $999,875.25
c. $1,000,450.15
d. $1,034,225.13
e. $1,087,226.11
35. Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to
thisfund, what rate of interest would he need to earn? (Round the rate of interest to the nearest whole number.)
a. 6%
b. 7%
c. 8%
d. 9%
e. 10%
36. Blair and Ashlyn purchased a home for $100,000 5 years ago. If its value appreciated at 6% annually, what is
itworth today? (Round the answer to the nearest dollar.)
a. $100,000
b. $106,000
c. $130,000
d. $133,823
e. $135,603
37. Which of these will be listed as a liability on your balance sheet?
a. Money market deposit account
b. Checking account
c. Equipment
d. Cash value of a life insurance policy
e. Education loan
38. Taylor invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it
take for the account to double in value? (Round the number of years to the nearest whole number.)
a. 8
b. 9
c. 10
d. 11
e. 12
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39. Which of the following statements regarding budgets is true?
a. Budgets are detailed forward-looking financial reports based on expected income and expenses.
b. Budgets describe a person’s financial position at a given point in time.
c. Budgets measure a person’s financial performance at a given point in time.
d. Budgets describe a person’s financial goals over time.
e. Budgets are historical documents that tell an individual how they have performed in the past.
40. Which of the following is the most preferred option if your annual budget shows that you will have a deficit?
a. Liquidate enough savings and investments to meet the budget shortfall.
b. Cut low-priority expenses from the budget.
c. Borrow funds from family members to meet the budget shortfall.
d. Increase income to meet the budget shortfall.
e. Sell a vehicle to avoid a deficit.
41. The Rasquinas want to have $1,750,000 for their retirement in 30 years. How much should they save annually if
they expect to earn 8% on their investments?
a. $12,445.05
b. $13,653.22
c. $14,256.33
d. $15,448.01
e. $15,550.00
42. You are solvent if your:
a. total liabilities exceed your total assets.
b. total assets exceed your total liabilities.
c. total assets exceed your equity.
d. total liabilities exceed your equity.
e. current liabilities exceed your current assets.
43. Diego and Chloe have liquid assets of $5,000 and other assets of $50,000. Their total liabilities equal $26,000.
What is their net worth?
a. $29,000
b. $31,000
c. $55,000
d. $76,000
e. $81,000
44. Investment assets are acquired to:
a. be used in our everyday lives.
b. increase productivity.
c. provide a service.
d. earn a return.
e. be easily converted to cash.
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45. Elena purchased a stamp collection for $5,000 30 years ago. If its value appreciated at 8% annually, what is
itworth today? (Round the answer to the nearest dollar.)
a. $17,000
b. $36,400
c.$50,313
d. $123,023
e. $150,000
46. A cash surplus on an income and expense statement prepared on a cash basis indicates that:
a. the net worth is equal to zero.
b. investments are less than the cash balance.
c. the payments on debts are not met.
d. total expenses are less than total income.
e. income and expenses are equal.
47. Which of the following is considered to be a flexible expenditure?
a. Rent
b. Insurance premiums
c. Entertainment
d. Car loan payments
e. Student loan payment
48. Which of the following is an example of a long-term liability?
a. Insurance premium
b. Repair bill
c. Taxes due
d. Education loan
e. Grocery bill
49. Which of the following statements regarding an individual’s income and expense statement is true?
a. An income and expense statement describes your financial position at a given point in time.
b. An income and expense statement looks forward in time to control spending.
c. An income and expense statement identifies your financial goals.
d. An income and expense statement measures your financial performance over time.
e. An income and expense statement can be used to predict inflation and interest rates.
50. Which of the following would not be included on your income and expense statement?
a. Car payment
b. Gross salary
c. Investment income
d. Home value
e. Mortgage payment
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51. Which of these is an example of personal property?
a. Jewelry
b. Mutual fund
c. Corporate bond
d. Charge account
e. Certificate of deposit
52. Which of the following statements regarding a budget is true?
a. It shows the computation of the interest on a loan.
b. It is a schedule of personal investments.
c. It is a list of prepaid expenses.
d. It is a detailed financial report that looks forward.
e. It identifies one’s assets and liabilities.
53. Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it
take for the account to double in value? (Round the number of years to the nearest whole number.)
a. 8
b. 9
c. 10
d. 11
e. 14
54. There is a need for budget adjustments when:
a. income is stable.
b. account deficits and surpluses balance out.
c. account deficits are more than surpluses.
d. a new calendar year begins.
e. short-term financial goals are achieved.
55. The liquidity ratio is designed to show the percentage of which of the following that you can cover with your
current liquid assets?
a. Current debts
b. Current expenses
c. Long-term debts
d. Planned savings
e. Planned purchases
56. Which of these is the most preferred way to deal with budget deficits?
a. Liquidating savings and investments
b. Borrowing money from relatives
c. Cutting low-priority expenses
d. Increasing income
e. Paying all short-term liabilities
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