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Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)

True / False Questions


1. (p. 14) Inflation reduces the buying power of money. TRUE
2. (p. 16) When prices are increasing at a rate of 6 percent, the cost of products would double in
about 12 years. TRUE
3. (p. 8) Short-term goals are usually achieved within the next year or so. TRUE
4. (p. 15) Opportunity costs refer to what a person gives up when making a decision. TRUE
Multiple Choice Questions
5. (p. 2) The main goal of personal financial planning is:
A. saving and investing for future needs.
B. reducing a person's tax liability.
C. achieving personal economic satisfaction
D. spending to achieve financial objectives.
E. saving, spending, and borrowing based on current needs.
6. (p. 14) With an inflation rate of 9 percent, prices would double in about ___________ years.
A. 4
B. 6
C. 8
D. 10
E. 12
7. (p. 21) The ability to convert financial resources into usable cash with ease is referred to as:
A. bankruptcy.
B. liquidity.
C. investing.
D. saving.
E. opportunity cost.
8. (p. 8) As Jean Tyler plans to set aside funds for her young children's college education, she is
setting a(n) ____________ goal.
A. intermediate
B. long-term
C. short-term
D. intangible
E. durable

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


9. (p. 8-9) Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks:
A. measurable terms.
B. a realistic perspective.
C. specific terms.
D. the type of action to be taken.
E. a time frame.
10. (p. 5) Opportunity cost refers to:
A. money needed for major consumer purchases.
B. what a person gives up by making a choice.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.
11. (p. 16) If a person deposited $50 a month for 6 years earning 8 percent, this would involve what
type of computation?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
12. (p. 16) Which type of computation would a person use to determine current value of a desired
amount for the future?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
13. (p. 14) If inflation is increasing at 3 percent per year, and your salary increases at the same rate,
how long will it take your salary to double?
A. 30 years
B. 24 years
C. 18 years
D. 12 years
E. It would never double
14. (p. 17) If you put $1,000 in a saving account and make no further deposits, what type of
calculation would provide you with the value of the account in 20 years?
A. future value of a single amount
B. simple interest
C. present value of a single amount
D. present value of a series of deposits
E. future value of a series of deposits

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


15. (p. 3) The first step of the financial planning process is to:
A. develop financial goals.
B. implement the financial plan.
C. analyze your current personal and financial situation.
D. evaluate and revise your actions.
E. create a financial plan of action.
16. (p. 5) Which of the following is an example of opportunity cost?
A. renting an apartment near school
B. saving money instead of taking a vacation
C. setting aside money for paying income tax
D. purchasing automobile insurance
E. using a personal computer for financial planning
17. (p. 7) The financial planning process concludes with efforts to
A. develop financial goals.
B. create a financial plan of action.
C. analyze your current personal and financial situation.
D. review the financial plan.
E. review and revise your actions.
18. (p. 14) If you desire your money to double in 6 years, what rate of return would you need to
earn?
A. 6 percent
B. 8 percent
C. 9 percent
D. 10 percent
E. 12 percent
True / False Questions
19. (p. 56) A tax-exempt employee benefit is usually more advantageous than a tax-deferred
benefit. TRUE
20. (p. 41) A job tends to have less of a long-term commitment to a field than a career. TRUE
21. (p. 78) Financial records that may need to be referred to on a regular basis should be kept in a
safe-deposit box. FALSE
22. (p. 80) A personal balance sheet reports your income and expenses. FALSE
23. (p. 80) A person's net worth is the difference between the value of the items owned and the
amounts owed to others. TRUE
24. (p. 80) Furniture, jewelry, and an automobile are examples of liquid assets. FALSE

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


25. (p. 82) Current liabilities are amounts that must be paid within a short period of time, usually
less than a year. TRUE
26. (p. 83) A personal cash flow statement presents income and outflows of cash for a given time
period, such as a month. TRUE
27. (p. 84-85) Medical expenses, clothing, and telephone are examples of fixed expenses. FALSE
28. (p. 86) If expenses for a month are greater than income, an increase in net worth will result.
FALSE
Multiple Choice Questions
29. (p. 56) Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a
value of $500 would have a tax-equivalent value of:
A. $694.
B. $528.
C. $500.
D. $360.
E. $140.
30. (p. 79) A home file should be used for:
A. storing all financial documents and records.
B. financial records for current needs.
C. documents that require maximum security.
D. obsolete financial documents.
E. records that are difficult to replace.
31. (p. 80) A personal balance sheet presents:
A. amounts budgeted for spending.
B. income and expenses for a period of time.
C. earnings on savings and investments.
D. items owned and amounts owed.
E. family financial goals.
32. (p. 80) A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:
A. $45,000.
B. $23,000.
C. $22,000.
D. $67,000.
E. $41,000.

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


33. (p. 80) Items that you own with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.
34. (p. 80) Items of value minus the amounts owed to others equals:
A. net assets.
B. net worth.
C. total liabilities.
D. total income.
E. budgeted expenses.
35. (p. 82) Liabilities are amounts representing:
A. debts.
B. items of value.
C. living expenses.
D. taxable income.
E. current assets.
36. (p. 82) A person's net worth is computed by:
A. adding assets and liabilities.
B. deducting current living expenses from total assets.
C. subtracting total liabilities from total assets.
D. subtracting assets from current liabilities.
E. adding liabilities and budgeted expenses.
37. (p. 82) A person's net worth would increase as a result of:
A. reduced amounts owed to others.
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. decreased value of investments.
38. (p. 83) A cash flow statement reports a person's or a family's:
A. net worth.
B. current income and payments.
C. plan for spending.
D. value of investments.
E. balance of savings.

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


39. (p. 84-85) Payments that do not vary from month to month are ____________ expenses.
A. fixed
B. current
C. variable
D. luxury
E. budgeted
40. (p. 80) During the past month, Jennifer Ernet had income of $3,000 and during the month, her
net worth declined by $200. If no other financial activities occurred, this means Jennifer's
payments for the month were:
A. $3,200.
B. $3,000.
C. $2,800.
D. $200.
41. (p. 76) Kyle Burroughs has decided to put $25 more per week in his savings account. He knows
this will reduce his ability to go out to eat each week but thinks building his savings is important.
This would be an example of:
A. A budget variance
B. An opportunity cost
C. A balance sheet
D. A liquid asset
E. Net worth
42. (p. 81-82) Patricia McDonald has determined that the value of her liquid assets is $4,500, the
value of her real estate is $128,000, the value of her personal possessions is $62,000 and the
value of her investment assets is $73,000. She has also determined the value of her current
liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Jamie's net
worth?
A. $267,500
B. $105,500
C. $162,000
D. $205,500
E. $132,000
43. (p. 83) In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of
$2,950, resulting
A. a balanced budget.
B. a surplus of $150.
C. a deficit of $150.
D. a surplus of $3,100.
E. a deficit of $2,950.

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


44. (p. 82, 84) Allen Arnold has determined that the amount of money he spends on his mortgage
payment, car insurance payment, and cable bill totals $1,200 each month. What type of expenses
has Allen determined with this calculation?
A. Current Liabilities
B. Long Term Liabilities
C. Net worth
D. Variable Expenses
E. Fixed Expenses
True / False Questions
45. (p. 104) Taxes are only considered as financial planning activities in April. FALSE
46. (p. 105) Taxable income is the total earnings of a person. FALSE
47. (p. 107) An exclusion is earnings not included in taxable income. TRUE
48. (p. 109) Exemptions are deductions for yourself, your spouse and qualified dependents that you
can deduct from adjusted gross income. TRUE
Multiple Choice Questions
49. (p. 110) A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have
an average tax rate of ____ percent.
A. 8.6
B. 10.3
C. 12.3
D. 14.2
E. 16.7
50. (p. 107) An amount not included in gross income is:
A. a tax credit.
B. an exemption.
C. an exclusion.
D. earned income.
E. portfolio income.
51. (p. 107) Which of the following would be deducted from gross income to obtain adjusted gross
income?
A. alimony payments
B. mortgage interest
C. medical expenses
D. foreign income exclusion
E. charitable contributions

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)


52. (p. 109) A deduction from adjusted gross income for yourself, your spouse, and qualified
dependents is:
A. the standard deduction.
B. a tax credit.
C. an itemized deduction.
D. an exclusion.
E. an exemption.
53. (p. 110-111) A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's
taxes by:
A. $10.
B. $28.
C. $14.
D. $50.
E. $35.
54. (p. 117) A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975
would:
A. receive a refund of $3,975.
B. owe $4,350.
C. owe $375.
D. receive a refund of $4,350.
E. receive a refund of $375.

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)

Personal Finance 1200 Fall 2010 Exam #1 (Chapters 1-4)