Test Bank for Personal Finance, 7th Edition

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Personal FinanceSeventh EditionJeff MaduraTest Bank (Download only)forPersonal FinanceAlan Wolk

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1Personal Finance, 7e(Madura)Chapter 1 Overview of a Financial Plan1.1 Developing the Financial Plan1) Most Americans will never be able to understand and develop a personal financial plan.Answer: FALSEDiff: 1Question Status: CarryoverAACSB:Application of Knowledge2) The simple objective of financial planning is to make the best use of your resources to achieveyour financial goals.Answer: TRUEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge3) An understanding of personal finance is not necessary to judge the quality of advice that afinancial adviser may give.Answer: FALSEDiff: 1Question Status: CarryoverAACSB: Reflective Thinking4) The first step in budgeting is to evaluate your current financial positionby looking at just yourincome and expenses.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge5) The current market value of what you own minus the value of what you owe is called your networth.Answer: TRUEDiff: 2Question Status: Major ChangeAACSB: Application of Knowledge6) Various government agencies have conducted surveys that show most people have a goodunderstanding of personal finance.Answer: FALSEDiff: 1Question Status: CarryoverAACSB: ReflectiveThinking

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27) A good understanding of the financial planning process will allow you to make informeddecisions without relying on the advice of financial advisers.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge8) A thorough understanding of this personal finance book qualifies you to become a financialadviser.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Reflective Thinking9) If a person focuses their budget on "spending" vs. "saving," it is more likely they willA) oversave.B) overspend.C) save just the right amount.D) all of theseAnswer: BDiff: 1Question Status: NewAACSB: Application of Knowledge10) Personal finance doesnotinclude the process of planning yourA) spending.B) financing.C) investing.D) spirituality.Answer: DDiff: 1Question Status: CarryoverAACSB: Application of Knowledge11) Which item isnotone of the components of a personal financial plan?A) Setting aside money for season tickets to your favorite football team is an example ofB) Investing your moneyC) Planning your retirementD) BudgetingAnswer: ADiff: 1Question Status: CarryoverAACSB: Application of Knowledge

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312) A personal financial plan specifies financial goals and describesA) saving, investing, and asset valuation.B) spending, saving, and credit card financing.C) spending, financing, and investment plans.D) saving and spending only.Answer: CDiff: 3Question Status: CarryoverAACSB: Application of Knowledge13) All of the following aretrue with regard to the demand for financial advisers,exceptA) many people lack an understanding of personal finance.B) many people prefer to rely on advisers rather than making theirown decision.C) many people are just not interested in making theirown financial decisions.D) only financial advisers can purchase mutual funds for a person's 401(k).Answer: DDiff: 2Question Status: Major ChangeAACSB: Application of Knowledge14) "Big spenders" focus their budgeting decisions onA) reducing expenses.B) increasing income.C) spending most of their income.D) saving most of their income.Answer: CDiff: 1Question Status: CarryoverAACSB: Application of Knowledge15) "Big savers" focus their budget decisions onA) reducing expenses.B) increasing income.C) spending most of their income.D) saving as much of their income as possible.Answer: DDiff: 1Question Status: Minor ChangeAACSB: Application of Knowledge

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416) Which of the following isnotan asset?A) Your house that you rentB) Your car that you financedC) Your coin collection given to you by your grandfatherD) Your textbooksAnswer: ADiff: 2Question Status: CarryoverAACSB: Application of Knowledge17) Which of the following items isnota liability?A) The balance due on your credit cardB) Your college loansC) The wages you give up to take a classD) An IOU to your roommateAnswer: CDiff: 2Question Status: CarryoverAACSB: Application of Knowledge18) A measure of your wealth isA) the highest level of education you've attained.B) the amount of your annual income.C) the current market value of what you own minus the value of whatyou owe.D) your tax bracket.Answer: CDiff: 1Question Status: Major ChangeAACSB: Application of Knowledge19) Which of the following isnota financing decision?A) Should you buy Apple stock with savings?B) Should you borrow on your home equityloan to buy Apple stock?C) Should you take a loan and buy a car?D) Should you take a 15-or 30-year mortgage to buy a house?Answer: ADiff: 2Question Status: Major ChangeAACSB: Application of Knowledge

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520) Which of these statements is true with regards to the 2008-2009 financial crisis?A) More than half of the people in the United States lost their jobs.B) The values of many homes were cut in half or more.C) The values of most investments declined byno more than 10%.D) Having a financial plan is of no help when economic conditions are as weak as they wereduring the crisis.Answer: BDiff: 2Question Status: CarryoverAACSB:Application of Knowledge21) Amanda has cash of $100, a car worth $5,000, and books worth $200. Her liabilities includea car loan of $2,000 and a credit card balance of $100. What is the total of her assets, liabilities,and net worth?Answer: Assets of $5,300, liabilities of $2,100, and a net worth of $3,200.Diff: 2Question Status: CarryoverAACSB: Analytical Thinking1.2 How Personal Finance Can Enhance Your Job Marketability1) Making personal finance decisions enhances your employability becauseA) employers prefer to hire people with significant assets.B) makingdecisions increases your decisiveness.C) you are managing yourself and showing initiative.D) None of these are correct.Answer: CDiff: 1Question Status: NewAACSB: ReflectiveThinking2) Organizational skills are an important component in developing a personal financial planbecauseA) decisions related to one component of the plan may affect all other components.B) you can apply organizational skills on the job.C) it is hard to makea decision when your desk is a mess.D) Both A and B are correct.Answer: DDiff: 2Question Status: NewAACSB: Reflective Thinking

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61.3 Components of a Financial Plan1) A complete financial plan consists of budgeting, taxes, financing, and investing.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge2) If you do not have access to money to cover cash needs, you may have insufficient liquidity.Answer: TRUEDiff: 1Question Status: CarryoverAACSB: Application ofKnowledge3) Liquidity cannot be enhanced using sound money and credit management.Answer: FALSEDiff: 1Question Status: CarryoverAACSB: Application of Knowledge4) Money management decisions include deciding how much credit to obtain tosupport yourspending and what sources of credit to use.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge5) Credit should be used only when necessary,since it usually involves borrowed funds that youwill need to payback with interest.Answer: TRUEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge6) Your financial plan should include a plan for protecting and enhancing your assets and incomethrough carrying excess insurance coverage so you can profit in the event of a loss.Answer: FALSEDiff: 1Question Status: Major ChangeAACSB: Application of Knowledge7) One of the considerations that determines your investment choices is the level of risk you arewilling to tolerate.Answer: TRUEDiff:1Question Status: CarryoverAACSB: Reflective Thinking

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78) People do not need to determine how much money to set aside for retirement and how thosefunds should be invested until they near their retirement age.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge9) Effective estate planning will ensure that your wealth is distributed according to your wishes,but will do nothing to reduce the potential taxes your estate is subject to.Answer: FALSEDiff: 2Question Status: CarryoverAACSB: Application of Knowledge10) Retirement planning should beginA) as early as possible in order that you accumulate sufficient funds for retirement.B) as soon as you start working full time.C) a few years before you plan on retiring.D) you do not need to plan since Social Security and your firm's pension will be sufficient.Answer: ADiff: 2Question Status: CarryoverAACSB: Application of Knowledge11) As a result of the increased estate tax exemption limits enacted with the 2018 Federal incometax law changes, it is no longer necessary for a family to do estate planning.Answer:FALSEDiff: 2Question Status: NewAACSB: Reflective Thinking12) ________ is the process of forecasting future expenses and savings.A) BudgetingB) PlanningC) PredictingD) Fortune-tellingAnswer: ADiff: 1Question Status: CarryoverAACSB: Application of Knowledge

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813) ________ involves having access to funds to cover any short-term cashneeds.A) InvestmentB) MoneyC) LiquidityD) RiskAnswer: CDiff: 1Question Status: Minor ChangeAACSB: Application of Knowledge14) ________ management involves decisions regarding how much money to retain in a liquidform and how to allocate funds among short-term investment instruments.A) InvestmentB) MoneyC) CreditD) LiquidityAnswer: BDiff: 1Question Status: CarryoverAACSB: Application of Knowledge15) ________ management involves decisions regarding how much credit you need to supportspending and which sources of credit to use.A) InvestmentB) MoneyC) CreditD) LiquidityAnswer: CDiff: 1Question Status: CarryoverAACSB: Application of Knowledge16) Which of the following is a credit management decision?A) Purchasing a used car with cashB) Investing your savings in the stock marketC) Obtaining a student loan to attend collegeD) Putting money into your retirement accountAnswer: CDiff: 1Question Status: CarryoverAACSB: Application of Knowledge

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917) Which of the following is an example of money management?A) Putting your money in a savings account at your bankB) Shopping around for the credit card with the best interest rateC) Deciding to delay buying a new car until you can pay cashD) Paying off a loan early to reduce the interest chargesAnswer: ADiff: 2Question Status: CarryoverAACSB: Application of Knowledge18) A plan for ________ is needed to determine how much you could afford to borrow, thelength of the loan, and how to select a loan that charges competitive interest rates.A) buyingB) financingC) spendingD) savingAnswer: BDiff: 1Question Status:CarryoverAACSB: Application of Knowledge19) Which of the following isnota way that insurance is designed to protect your wealth?A) Protecting the assets that you ownB) Limiting your exposure to potential liabilitiesC) Enhancing your income in theevent of a lossD) Protecting your investments from downturns in the stock marketE) B and D are both correctAnswer: EDiff: 2Question Status: Major ChangeAACSB: Application of Knowledge20) What isthe core purpose of buying insurance?A) Protect your wealth and assetsB) Make sure you make money on any claimC) Insurance is an expense a careful investor needs to minimizeD) Make sure you leave an estate when you are goneAnswer: ADiff: 2QuestionStatus: CarryoverAACSB: Application of Knowledge

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1021) Which of the following doesnotprotect your assets and/or income?A) Money insuranceB) Disability insuranceC) Automobile insuranceD) Life and health insuranceAnswer: ADiff: 1Question Status:CarryoverAACSB:Application of Knowledge22) Potential investments include all of the following instruments,exceptA) stocks and bonds.B) mutual funds.C) real estate.D) lottery tickets.Answer: DDiff: 1Question Status: CarryoverAACSB: Application of Knowledge23) Which of the following wouldnotbe considered an investment?A) A membership in a golf or swim clubB) An art collectionC) A savings accountD) A mutual fund of stocks and bondsAnswer: ADiff: 1Question Status: Minor ChangeAACSB: Reflective Thinking24) Retirement planning should beginA) when you retire.B) shortly after you retire.C) well before you retire.D) at any time.Answer: CDiff: 2Question Status: CarryoverAACSB: Applicationof Knowledge

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1125) From a financial standpoint when should a person start retirement planning and saving?A) When he or she first starts receiving a salaryB) At 45-50 years of ageC) At 50-55 years of ageD) At 55-60 years of ageAnswer: ADiff: 2Question Status: CarryoverAACSB: Application of Knowledge26) Estate planningA) protects your wealth against unnecessary taxes.B) shelters your wealth againstalltaxes.C) ensures that your wealth is distributed in the manner that you determine.D) A and C are correct.Answer: DDiff: 2Question Status: Major ChangeAACSB: Application of Knowledge27) The act of determining how wealth will be distributed before or upon death isA) estate planning.B) retirement planning.C) not needed for most people.D) liquidity planning.Answer: ADiff: 1Question Status: CarryoverAACSB: Application of Knowledge28) ________ is the uncertainty surrounding the potential return on an investment.Answer: RiskDiff: 1Question Status: CarryoverAACSB: Application of Knowledge29) Your ability to access funds to cover any short-term cash deficiencies is your ________.Answer: liquidityDiff: 1Question Status: CarryoverAACSB:Application of Knowledge30) During his ________ your Uncle Harvey decides to cut you out of his will.Answer: estate planningDiff: 1Question Status: CarryoverAACSB: Application of Knowledge

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1231) Most investments are subject to ________, which is the uncertainty surrounding theirpotential return.Answer: riskDiff: 1Question Status: CarryoverAACSB:Applicationof Knowledge32) List the six components of a financial plan.Answer:(a) Budgeting and tax planning(b) Managing liquidity(c) Financing your large purchases(d) Protecting your assets and income(e) Investing your money(f) Planning yourretirement and estateDiff: 1Question Status: CarryoverAACSB: Application of Knowledge1.4 How Financial Plan Decisions Affect Your Cash Flows1) The major source of cash outflow for most people is the income they receive from employers.Answer: FALSEDiff: 1Question Status: CarryoverAACSB: Application of Knowledge2) Which of the following isnota decision that you would probably encounter in managing yourbudget?A) What expenses you should anticipateB) How much money you should attempt tosave each monthC) How you will allocate your estate among your heirsD) How long you will take to pay off a specific loanAnswer: CDiff: 2Question Status: CarryoverAACSB: Application of Knowledge3) The first step in developing your financial planisA) establish your financial goals.B) pay off all your credit cards.C)buy a cool car then begin saving money.D) get a good job.Answer: ADiff: 2Question Status: CarryoverAACSB: Application of Knowledge

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134) Budgeting helps set goals by estimating ________ ona monthly basis to determine how muchto save and spend.A)assets and incomeB) liabilities and expensesC) income and expensesD) net worth and incomeAnswer: CDiff: 2Question Status: CarryoverAACSB: Application of Knowledge5) A budget doesnotA) require thinking and planning.B) require an evaluation of your current financial position.C) help you account for all your income and expenses.D) require the preparation of a will.Answer: DDiff: 2Question Status: CarryoverAACSB: Application ofKnowledge6) When estimating expenses for a budget,A) last month's and last year's expenses are not a good starting point.B) many of the same expenses do not occur each month.C) large unusual expenses such as car or hospital bills shouldbe included.D) estimating your future assets is a good starting point.Answer: CDiff: 1Question Status: CarryoverAACSB: Application of Knowledge7) If your income exceeds the amount you spend, you should ________ your investments or________ loans.A) reduce; repay existingB) reduce; obtain moreC) increase; repay existingD) increase; obtain moreAnswer: CDiff: 2Question Status: CarryoverAACSB: Application of Knowledge

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148) To increase your savings,A) income must be increased or expenses decreased.B) expenses must be increased.C) income must be decreased.D) net worth must be decreased.Answer: ADiff: 1Question Status: CarryoverAACSB: Application of Knowledge9) Which of the following wouldnotbe a factor in evaluating your currentfinancial position?A) IncomeB) ExpensesC) Possible lottery winningsD) AssetsAnswer: CDiff: 1Question Status: CarryoverAACSB: Application of Knowledge10) Your net worth willnotbe increased by which of the following actions?A) Increasing your savings from 10% to 15% of your earningsB) Receiving a $100 birthday present from your grandmotherC) Buying a new home entertainment system and putting the entire amount on your credit cardD) Receiving an inheritanceAnswer: CDiff: 2Question Status: CarryoverAACSB: Application of Knowledge11) The income in your budget isnotaffected byA) your education.B) your career decisions.C) the tax laws.D) the standard of living you experienced as a child.Answer: DDiff: 1Question Status: CarryoverAACSB: Application of Knowledge

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