Personal Finance 6th Canadian Edition Test Bank

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1Student: ___________________________________________________________________________1.Personal financial planning has the main goal of:A.Savings and investing for future needs.B.Reducing a person's tax liability.C.Managing money toachieve personal economic satisfaction.D.Spending to achieve financial objectives.E.Savings, spending, and borrowing based on current needs.2.The first step of the financial planning process is toA.develop financial goals.B.implement the financial plan.C.determine your current personal and financial situation.D.evaluate and revise your actions.E.create a financial plan of action.3.Opportunity cost refers to:A.money needed for majorconsumer purchases.B.the trade-off of a decision.C.the amount paid for taxes when a purchase is made.D.current interest rates.E.evaluating different alternatives for financial decisions.4.Increased consumer spending willusually cause:A.lower consumer prices.B.reduced employment levels.C.lower tax revenues.D.lower interest rates.E.higher employment levels.

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5.The uncertainty associated with decision making is referred to as:A.opportunity cost.B.selection of alternatives.C.financial goals.D.personal values.E.risk.6.Some savings and investment choices have the potential for higher earnings. However, thesemay also be difficult to convert to cashwhen you need the funds. This problem refers to:A.Inflation riskB.Interest rate riskC.Income riskD.Personal riskE.Liquidity risk7.The financial planning process concludes with efforts to:A.develop financialgoals.B.create a financial plan of action.C.analyze your current personal and financial situation.D.implement the financial plan.E.revaluate and revise your actions.8.Changes in income, values, and family situation make itnecessary to:A.develop financial goalsB.implement the financial plan.C.evaluate and revise your actions.D.analyze your current personal and financial situation.E.create a financial plan of action.

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9.As JeanneTaillefer plans to set aside funds for her young children's college education, she issetting a(n) ____________ goal.A.intermediateB.short termC.long-termD.intangibleE.durable10.____________ goals relate to personal relationships, health, and education.A.Short-termB.Intangible-purchaseC.Consumable-productD.Durable-productE.Intermediate11.Brad Opper has a goal of "saving $50 a month forvacation." Brad's goal lacksA.measurable terms.B.a realistic perspective.C.specific actions.D.a tangible end.E.a time frame.12.Which of the following goals would be the easiest to implement and measure itsaccomplishment?A."Reduce our debt payments."B."Save funds for an annual vacation."C."Save $100 a month to create a $4,000 emergency fund."D."Clear credit card debtE."Invest $2,000 a year for retirement."

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13.The present value of a future amount will decrease if _________________.I. the discount rate increasesII. the amount occurs closer in timeIII. the compounding frequency increasesIV. inflation increasesA.I and II onlyB.I and III onlyC.II and III onlyD.III and IV onlyE.I, III and IV only14.Higher prices are likely to resultfrom:A.increased spending by consumers.B.increased production by business.C.lower interest rates.D.lower demand by consumersE.an increase in the supply of a product.15.Who ismostlikelyto benefit by inflation?A.retired peopleB.lendersC.borrowersD.low-income consumersE.government16.Higher consumer prices are likely to be accompanied by:A.lower union wages.B.lower interest rates.C.lower production costs.D.higher interest rates.E.higher exports.

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17.Increased consumer spending will usually cause:A.lower consumer prices.B.reduced employment levels.C.lower tax revenues.D.higher employmentlevels.E.lower interest rates.18.Higher interest rates can be caused by:A.a lower money supply.B.an increase in the money supply.C.a decrease in consumer borrowing.D.lower government spending.E.increased saving andinvesting by consumers.19.The changing cost of money is referred to as ____________ risk.A.interest-rateB.inflationC.economicD.trade-offE.personal20.Ariskpremiumassociated with interest rates refers to:A.higher earnings due to uncertainty.B.lower consumer prices.C.the opportunity cost of borrowingD.a loan with a short maturity.E.expected lower inflation.

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21.Assume thefollowing future values will be received at the end of each year. What is the interestrate if the future value of these amounts at the end of year 3 is equal to $2,393?Yr. 1 = $500; Yr. 2 = $750; Yr. 3 = $1,000A.6.5%B.6.8%C.7.0%D.8.0%E.8.9%22.The stages that an individual goes through based on age, financial needs, and family situation iscalled the:A.adult life cycle.B.budgeting procedure.C.personal economic cycle.D.financial planning processE.tax planning process.23.Assume your uncle will pay you $100 for each of the next two years and $200 in years 3 andthese amounts will be paid at year end. Assume the interest rate is 10% for the first twoyears and12% for the next two (years 3 and 4). What is your uncle's promise worth in today's dollars?(Round your answer)A.$317B.$342C.$453D.$512E.$60024.The main economic influence that determines prices is:A.the stock market.B.supply and demand.C.employment.D.government spending.E.interest rates

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25.Reduced funds available for investment in our economy could result fromA.expanded savings by consumers.B.higher importsthan exports.C.reduced spending for consumer goods.D.higher exports than imports.E.higher opportunity costs.26.Which of the following would cause prices to drop?A.a demand for higher wagesB.increased production bybusinessC.increased taxes on businessD.a reduction in the money supplyE.high levels of demand by customers27.An example of apersonalopportunity cost would be:A.lost wages due to continuing as a full time studentB.higher earnings on savings that must be kept on deposit a minimum of six months.C.time comparing several brands of personal computersD.Interest lost by using savings to make a purchaseE.having to pay a tax penalty due to not havingenough withheld from your monthly salary.28.The time value of money refers to:A.personal opportunity costs such as time lost on an activity.B.financial decisions that require borrowing funds from a financial institution.C.changes in interest rates due to changes in the supply and demand for money in our economy.D.increases in an amount of money as a result of interest.E.changing demographic trends in our society.

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29.The amount of simple interest isdetermined by multiplying the amount in savings by the:A.annual interest rate.B.time period.C.number of months in a year.D.time period and number of months.E.annual interest rate and the time period.30.What is thefuture value of $20,000 received in 10 years if it is invested at 6% compoundedannually for the next six years and 5%, compounded semi-annually for the remaining four years?A.$25,000B.$31,000C.$32,772D.$34,567E.$38,81731.If a person deposited $100 a month for 5 years earning 9 percent, this would involve what type ofcomputation?A.simple interestB.future value of a single amountC.future value of a series of depositsD.present value of asingle amountE.present value of a series of deposits32.Which type of computation would a person use to determine current value of a desired amount forthe future?A.simple interestB.future value of a single amountC.futurevalue of a series of depositsD.present value of a single amountE.present value of a series of deposits

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33.Future value calculations consider:A.compounding.B.add-on interest.C.discountingD.simple interest.E.anannuity.34.If you put $1,000 in a saving account and make no further deposits, what type of calculationwould provide you with the value of the account in 20 years?A.future value of a single amountB.simple interestC.presentvalue of a single amountD.present value of a series of depositsE.future value of a series of deposits35.An individual invests $10,000 at a rate of 5% per annum. What will be its value in 10 years' time?A.$15,000B.$15,853C.$16,289D.$18,000E.$19,00036.A major activity in the planning component of financial planning isA.selecting insurance coverage.B.evaluating investment alternatives.C.gaining occupational training andexperience.D.allocating current resources for spending.E.establishing a line of credit.

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37.Liquidity refers toA.the earnings on savings.B.the risk of an investment.C.the ease of converting a financial resource intocash.D.the amount of insurance coverage a person has.E.a person's inability to pay his or her debts.38.The problem of bankruptcy is associated with poor decisions in the ______________ componentof financial planning.A.financial goalsB.savingC.planningD.restructuring debtE.liquidity39.A question associated with the saving component of financial planning is:A.Is your will current?B.Do you have an adequate emergency fund?C.Isyour investment program appropriate to your income and tax situation?D.Do you have a realistic budget for your current financial situation?E.Are your transportation expenses minimized through careful planning?40.When an individual makes a purchase without considering the financial consequences of thatpurchase, they are ignoring the ________________ aspect of financial planning.A.BorrowingB.Risk ManagementC.SpendingD.Retirement and Estate PlanningE.Obtaining

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41.The major function of a financial plan is to:A.reduce taxes.B.increase savings.C.achieve financial goals.D.improve your credit rating.E.obtain adequate insurance protection.42.Dani Roy wants totravel after she retires as well as pay off the balance of the loan she has onthe home that she owns. Which step in the financial planning process does this situationdemonstrate?A.Determining her current financial situationB.Developing her financial goalsC.Identifying alternative courses of actionD.Evaluating her alternativesE.Implementing her financial plan43.Which of the following is usually considered a long-term financial strategy?A.creating a budgetB.using savings to pay off a loan earlyC.renting an apartment to save for the purchase of a homeD.investing in a growth mutual fund to accumulate retirement fundsE.purchasing life insurance to cover current needs of dependents44.Youwish to accumulate $15,000 within five years. How much would you have to save each yearfor five years to attain your goal? Assume an annual interest rate of 4%. Savings occur at the endof each year.A.$2,662B.$2,769C.$2,905D.$3,000E.$3,500

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45.Your goal is to pay down your student loan in 3 years. The balance today is $9,434. If you arecharged a rate of 9%, compounded monthly, what will be your monthly, end-of-period payment?A.$527B.$406C.$300D.$262E.$19346.The second step of the financial planning process is toA.develop financial goals.B.implement the financial plan.C.determine your current personal and financial situation.D.evaluate and revise your actions.E.create a financial plan of action.47.Decreased consumer spending will usually cause:A.lower consumer prices.B.reducedemployment levels.C.lower tax revenues.D.lower interest rates.E.higher employment levels.48.Anne has a goal of "saving some money month for vacation next summer." Anne's goal lacksA.measurable terms.B.a realisticperspective.C.specific actions.D.a tangible end.E.a time frame.

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49.Assume the following future values will be received at the end of each year. What is the interestrate if the future value of these amounts at the end of year 3 isequal to $2,006?Yr. 1 = $400; Yr. 2 = $500; Yr. 3 = $1,000A.6.5%B.6.8%C.7.0%D.8.0%E.8.9%50.Assume your friend will pay you $200 for each of the next two years and $400 in years 3 andthese amounts will be paid atyear end. Assume the interest rate is 10% for the first two years and12% for the next two (years 3 and 4). What is your friend's promise worth in today's dollars?(Round your answer)A.$1,000B.$951C.$906D.$831E.$60051.Time value of money calculations consider:A.present value.B.interest rate.C.paymentD.time period.E.all of the above.52.An individual invests $5,000 at a rate of 5% per annum. What will be its value in 10 years' time?A.$7,500B.$7,927C.$8,144D.$9,000E.$9,542

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53.Your goal is to pay down your student loan in 3 years. The balancetoday is $9,434. If you arecharged a rate of 4%, compounded monthly, what will be your monthly, end-of-period payment?A.$262B.$406C.$279D.$377E.$30054.Your goal is to accumulate in 4 years $5,000. If you can earn arate of 4%, compounded monthly,what will be your end of month monthly payment need to be to reach this goal?A.$96B.$104C.$124D.$262E.$30055.Financial planning does not have specific techniques that will beeffective for every individual andhousehold.TrueFalse56.Analyzing your current financial position is a part of the first stage of the financial planningprocess.TrueFalse57.Developing financial goals is the first step in thefinancial planning process.TrueFalse58.Risks associated with most financial decisions are fairly easy to measure.TrueFalse59.The financial planning process is complete once you implement your financial plan.TrueFalse60.Intermediate goals are usually achieved within the next year or so.TrueFalse

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61.Planning to buy a house is an example of a durable product goal.TrueFalse62.Household size is a major influence on personal financialplanning decisions.TrueFalse63.Simple interest is the interest computed based on the principle, excluding previously earnedinterest.TrueFalse64.Increased demand for a product or service will usually result in lower prices for the item.TrueFalse65.Inflation reduces the buying power of money.TrueFalse66.Lenders benefit less than borrowers in times of high inflation.TrueFalse67.When prices are increasing at a rate of 6 percent, the cost ofproducts would double in about 12years.TrueFalse68.A decrease in the demand for a product or service may result in a decrease in wages for peopleproducing that item.TrueFalse69.Higher inflation usually results in lower interest rates.TrueFalse70.Opportunity costs refer to time, money, and other resources that are given up when a decision ismade.TrueFalse

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