Personal Finance Exam Preparation Guide
Course Introduction
Personal Finance is a foundational course designed to provide students with the knowledge and skills necessary to make informed financial decisions throughout their lives. Topics covered include budgeting, saving, investing, credit management, insurance, retirement planning, and tax fundamentals. Emphasis is placed on practical strategies for managing personal income, debt, and assets while understanding the impact of financial decisions on long-term financial well-being. Through real-life case studies and interactive assignments, students develop critical thinking abilities and confidence to take control of their financial futures.
Recommended Textbook
Personal Financial Planning 1st Edition by Lewis Altfest
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20 Chapters
651 Verified Questions
651 Flashcards
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Page 2
Chapter 1: Introduction to PFP
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32 Verified Questions
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Source URL: https://quizplus.com/quiz/70125
Sample Questions
Q1) Outline the origins of personal financial planning. Your outline should include details regarding finance tools, other disciplines used in financial planning, personal finance categories, and the parts of personal financial planning.
Answer: The origins of personal financial planning are best described in a flow chart. Personal financial planning flows from personal finance, which flows from both finance tools and other disciplines. Parts of personal financial planning include cash flow, tax, investments, retirement, estate, special circumstances, and education planning, as well as risk management and employee benefits planning. Categories of personal finance include consumption and savings, investments and capital budgeting, financing, and risk management. Finance tools include time value of money, cash flow analysis, optimization, market pricing, analysis of risk, and investment models of behavior. Other disciplines include microeconomics, macroeconomics, accounting, law and taxation, mathematics and statistics, business and government, and psychology and sociology.
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Chapter 2: Time Value of Money
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Sample Questions
Q1) What is the future value of $15,000 invested today for the next 7 years if the interest rate is 17.5 percent, and the interest rate is compounded 12 times per year?
A) 45,600.98
B) 50,612.76
C) 22,205.44
D) 120,980.30
E) None of the above.
Answer: B
Q2) If the value of the principal today is $10,000 and the interest rate is 21.22%, what is the total compound interest income at the end of six years?
A) $21,728.22
B) $25,567.43
C) $20,000.54
D) $45,067.22
E) None of the above.
Answer: A
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4
Chapter 3: Beginning the Planning Process
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Sample Questions
Q1) Life cycle stages include:
A) Young, middle aged, and senior.
B) Child, adult, and elderly.
C) Student, employed, unemployed, retired.
D) Infant, child, adolescent, young adult, adult, elderly.
E) None of the above.
Answer: A
Q2) Peer groups are:
A) Households in a similar demographic category, against whom the advisor measures a household's financial health.
B) Analysts that review a household's wealth from an objective and non-judgmental perspective.
C) Analysts that review a household's wealth from a subjective and behavioral perspective.
D) Friends and associates with similar backgrounds, against whom we measure ourselves.
E) None of the above
Answer: D
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Chapter 4: Household Finance
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Sample Questions
Q1) What does a household represent?
A) An organizational structure that unites its occupants.
B) A structure with a form that affects a business.
C) The combined financial actions of a family.
D) Logical decision making by a family.
E) None of the above.
Q2) Which of the following statements regarding the relation between finance and economics is inaccurate?
A) Finance places more stress on practicality in its analysis.
B) Finance describes most processes in tangible money terms.
C) Finance is able to look at how assets interact so as to provide an integrated solution to a problem.
D) Finance more often incorporates risk in decision making and can offer outcomes in combined risk-return terms.
E) All of the above statements are accurate.
Q3) What are the similarities and differences between household and business financial processes for each of the following?
Q4) Please provide a breakdown of alternative household structures and their effect on financial, legal, and tax matters.
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Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) Which of the following is not applicable to a functional household statement of cash flows?
A) Resembles business cash flow statement.
B) Calculates net cash flows properly.
C) Handles revenues properly.
D) It is simpler than a traditional household statement of cash flows.
E) All of the above are applicable to a traditional household statement of cash flows.
Q2) Which of the following statements is not accurate?
A) Household results are provided on a cash flow statement while business results are provided on an income statement.
B) Business accounting under GAAP attempts to report income and expenses, whether or not in cash, for a fair presentation.
C) For household reporting of results, only cash matters.
D) All of the above statements are accurate.
E) None of the above statements are accurate.
Q3) How are each of the following items recorded according to GAAP business?
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7
Chapter 6: Cash Flow Planning
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Sample Questions
Q1) The ability to turn an asset into cash quickly at a reasonable transaction cost and without loss of principal is:
A) Liquidity.
B) Liquidity substitute.
C) Marketability.
D) Emergency substitute.
E) None of the above.
Q2) If total discretionary costs are $500, total income is $2,000, and discretionary capital expenditures are $500, what is the discretionary cost percentage?
A) 50%
B) 25%
C) 20%
D) 250%
E) None of the above.
Q3) Please list and describe eight different reasons for savings.
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8
Chapter 7: Debt
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Sample Questions
Q1) What are the advantages and disadvantages associated with fixed rate and variable rate mortgages?
Q2) Which of the following is not a benefit associated with a fixed rate mortgage?
A) They lock in a rate of interest that will be unaffected by a rise in market rates.
B) The borrower received a lower rate to compensate for assuming the risk of interest rate fluctuations.
C) They provide the opportunity to refinance should market rates decline.
D) All of the above are benefits associated with a fixed rate mortgage.
E) None of the above is a benefit associated with a fixed rate mortgage.
Q3) If the interest paid is $20,000, the cash available at the beginning of the period is $230,000, and the cash available at the end of the period is $10,000, what is the approximate interest rate?
A) 18.18%
B) 36.36%
C) 17.39%
D) 13.39%
E) 17.17%
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Chapter 8: Non Financial Investments
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Sample Questions
Q1) Which of the following is inapplicable to human assets?
A) It is a resource that reflects the current value of all our future earnings.
B) It is a nonmarketable asset.
C) It is often rented to an employer for a period of time.
D) All of the above are applicable to human assets.
E) A and c are applicable to human assets.
Q2) What factors influence home affordability and whether the purchase of a home is realistic? For each, provides details as to why it is included on the list.
Q3) What are capital expenditures?
A) Outlays for financial assets.
B) Outlays that provide benefits over an extended period of time.
C) Outlays that can be used for purchasing new assets but not improving existing ones.
D) Both a and b.
E) Both b and c.
Q4) Dorothy owns a home that was worth $1,400,000 at the beginning of the year and $1,135,000 at year's end. The same house can be rented for $152,300 per year. Upkeep is $27,500 per year. What is Dorothy's return for the year?
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10
Chapter 9: Financial Investments
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Sample Questions
Q1) Which of the following is a weakness associated with mutual funds?
A) Overhead costs.
B) Tax.
C) Diversification.
D) Both a and b.
E) Both b and c.
Q2) If the sum of dividends is $45,000, gains in principal invested are $2,500, and the original cost is $365,500, what is the holding period return?
A) Approximately 13%
B) Approximately 11.5%
C) Approximately 11%
D) Approximately 10.5%
E) None of the above.
Q3) Why can investments be viewed as a delivery mechanism?
A) Because they increase the household's risk level.
B) Because they help create sufficient assets to fund our goals.
C) Because they transform current savings into future spending.
D) Because they transform future income into current spending.
E) Investments are not viewed as delivery mechanism.
Q4) Please list and explain nine strengths associated with mutual funds.
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Chapter 10: Risk Management
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Sample Questions
Q1) Which of the following best describes self-insurance?
A) Actively setting aside money to fund any losses should that occur.
B) Using precautionary savings to purchase insurance.
C) Diversifying activities to minimize risk.
D) All of the above are descriptions of self-insurance.
E) None of the above.
Q2) The guarantee that a policy will continue in force, regardless of the health of the insured for a stated period of time is designated:
A) Unlimited term.
B) Renewable term.
C) Defined period.
D) Defined cost.
E) None of the above.
Q3) Which of the following is not part of an insurance policy?
A) Mortality charge.
B) Investment return.
C) Liability expense.
D) All of the above are parts of an insurance policy.
E) None of the above are a part of an insurance policy.
Q4) Please list and describe eight risk management approaches.
Page 12
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Chapter 11: Other Insurance
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Sample Questions
Q1) A hazard is best defined as:
A) An increase in the probability of peril.
B) The opposite of peril.
C) Uncertainty.
D) All of the above.
E) None of the above.
Q2) In which of the following cases should one purchase insurance?
A) High-severity, high-frequency.
B) Low-severity, high-frequency.
C) High-severity, low-frequency.
D) Low-severity, low-frequency.
E) None of the above.
Q3) Which of the following is used to only allow you to insure an item when you yourself would suffer a loss should the item be damaged?
A) Indemnity.
B) Screening of applicants.
C) Segregation of applicants.
D) Insurable interest.
E) None of the above.
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Page 13
Chapter 12: Retirement Planning
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Sample Questions
Q1) Pensions are best defined as:
A) The way through which the government supports the elderly.
B) Tax-deductible retirement investments.
C) Equity investments offered to state government employees.
D) Savings structures into which money is deposited to generate income for retirees.
E) None of the above.
Q2) If tax-deferred annuities are not withdrawn at the time of your death, then:
A) All gains over original cost associated with tax-deferred annuities are subject to tax at ordinary income rates.
B) All gains over original cost associated with tax-deferred annuities are subject to 10% penalty.
C) All gains over original cost associated with tax-deferred annuities are not taxable.
D) All gains over original cost associated with tax-deferred annuities are taxable up to the amount contributed.
E) None of the above.
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14
Chapter 13: Educational Planning
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Sample Questions
Q1) The interest rate on which of the following is a maximum of 8.3 percent regardless of market rates?
A) Federal PLUS loans.
B) Federal Perkins loans.
C) Stafford loans.
D) All of the above.
E) None of the above.
Q2) What is the third step of the educational policy statement process?
A) Estimate the total cost for parents.
B) Calculate the cost of education.
C) Establish investment policy.
D) Project the potential for financial aid.
E) None of the above.
Q3) For Series EE, what was the income eligibility for a joint filing in 2005?
A) $61,200-$91,850.
B) $61,200-$76,200.
C) $91,850-$121,850.
D) $61,200-$121,850.
E) None of the above.
Q4) Please list and explain seven basic financial literacy principles.
Page 15
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Chapter 14: Tax Planning
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Sample Questions
Q1) Which of the following is an example of the tax impact on risk management?
A) Taxes influence the timing of transactions and preparation for payment of sums due.
B) The calculation of returns is often done on an after-tax basis.
C) The calculation of the cost of borrowing is done on an after-tax basis.
D) There is often a clear preference for tax-deductible employee health and life insurance.
E) None of the above.
Q2) Which of the following is an example of conversion?
A) Shifting income from a higher to a lower income person.
B) Transforming income from one taxed at an ordinary income tax rate to taxation at a more favorable rate.
C) Selling investments with losses to reduce current taxes.
D) Both a and b.
E) Both b and c.
Q3) Please list and explain eight tax planning strategies.
Q4) Please detail the principal components of the tax return.
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Page 16
Chapter 15: Estate Planning
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Sample Questions
Q1) Which of the following assets do not bypass probate?
A) Those that are titled joint with right of survivorship.
B) Qualified pension plans such as IRA and 401.
C) Nonqualified deferred compensation plans.
D) Proceeds from life insurance on the decedent's life payable to a named beneficiary other than the decedent or the estate of the decedent.
E) All of the above bypass probate.
Q2) A bank account set up with the words "in trust for" or "trustee for" is:
A) A gift.
B) A trust.
C) Neither a gift nor a trust.
D) Both a gift and a trust.
E) None of the above.
Q3) What is the fourth step of estate planning?
A) Establish a will.
B) Consider other estate planning tools to meet objectives.
C) Evaluate obstacles and ways to overcome them.
D) Become familiar with all types of relevant taxes.
E) None of the above.
Q4) What are the fourteen steps of estate planning?
Page 17
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) For which of the following categories of bonds is the risk for a given change in interest rates generally classified as low?
A) Money market.
B) Short term.
C) Intermediate term.
D) Long term.
E) None of the above.
Q2) Capital gains taxes may be paid yearly:
A) Even though the shareholder has not sold any fund shares.
B) Only when the shareholder has sold fund shares.
C) Never.
D) During tax-transition years exclusively.
E) None of the above.
Q3) Which of the following is not a factor that leads to market interest rate fluctuations?
A) Changes in the expected rate of inflation.
B) Economic activity.
C) Federal Reserve actions.
D) Cyclical investor interest in bonds.
E) All of the above are factors.
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Page 18
Chapter 17: Background Topics
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Sample Questions
Q1) During which of the followings decades was the average real GDP growth highest in the U.S.?
A) 1950-1959.
B) 1960-1969.
C) 1970-1979.
D) 1980-1989.
E) 1990-1999.
Q2) Which of the following categories of financial are the largest depository institutions in the U.S.?
A) Savings banks.
B) Savings and loans.
C) Commercial banks.
D) Insurance companies.
E) Credit unions.
Q3) Which of the following is characterized by a limited life cycle?
A) Subchapter S corporation.
B) Limited liability partnership.
C) Partnership.
D) All of the above.
E) None of the above.
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Chapter 18: Capital Needs Analysis
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Sample Questions
Q1) Which of the following is a method that is commonly used to incorporate risk?
A) Avoid risky capital needs projections.
B) Use Monte Carlo simulation.
C) Be more conservative in our simple capital needs projections.
D) Both a and b.
E) Both b and c.
Q2) Which of the following is a key retirement goal?
A) The age at which retirement is to take place.
B) The standard of living desired at that time.
C) To retire as early as possible.
D) Both a and b.
E) Both b and c.
Q3) Which of the following is an advantage associated with being more conservative in one's simple capital needs projections?
A) You have no benchmark to determine how much to alter each calculation.
B) Errors associated with this approach will not change one's lifestyle.
C) It is easy to understand and to execute.
D) Both a and b.
E) Both b and c.
Q4) Please list the 11 steps associated with a retirement needs analysis.
Page 20
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Chapter 19: Behavioral Financial Planning
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Sample Questions
Q1) What is the mandate of behavioral financial planning?
A) To eliminate any behavior that is not result in revenue generation.
B) To eliminate any behavior that is increases the risk to the revenue source.
C) To focus on any behavior that provides a shortfall from ideal results and can be improved upon.
D) Both a and b.
E) Both b and c.
Q2) Which of the following is a higher-level feeling?
A) Good health.
B) Security.
C) Comfort.
D) All of the above.
E) None of the above.
Q3) Which of the following is a component of behavioral financial planning operations?
A) Estate planning.
B) Traditional money planning and making more efficient financial decisions.
C) Life planning.
D) Both a and b.
E) Both b and c.
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Page 21
Chapter 20: Completing the Process
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Sample Questions
Q1) An ideal financial plan should have:
A) A summary at the beginning.
B) A mix of written information, numbers through tables, and figures.
C) A summary at the end.
D) Both a and b.
E) All of the above.
Q2) Which of the following is not a tool that enhances the household's decision making function?
A) SWOT analysis.
B) Environmental analysis.
C) Sensitivity analysis.
D) Scenario analysis.
E) All of the above are tools that enhance the household's decision making function.
Q3) Please list 8 distinguishing features of personal financial planning theory, and describe the benefit of each.
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