Personal Financial Planning Review
Questions
Course Introduction
Personal Financial Planning is a practical course designed to help students develop the skills and knowledge necessary to make informed decisions about their personal finances. Topics covered include budgeting, savings, investment strategies, credit management, insurance, tax planning, and retirement planning. Students will learn how to set financial goals, analyze their financial situation, understand financial products and services, and create a comprehensive financial plan. Emphasis is placed on the application of financial planning concepts to real-life situations, empowering students to achieve financial stability and security throughout their lives.
Recommended Textbook
Personal Finance Turning Money into Wealth 6th Edition by Arthur J. Keown
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18 Chapters
2235 Verified Questions
2235 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) Bert bought a used car last month for $1,200. He just found out he needs a new transmission that will cost $1,800 to install. He is asking you for advice as to what he should do. What financial principle from Chapter One would you use to base your advice on?
A) Waste not, want not, smart spending matters
B) Mind games and your money
C) Protect yourself from major catastrophes
D) None of the above would be correct.
Answer: B
Q2) Which of the following falls under the category of mind games and your money?
A) the sunk cost effect
B) mental accounting
C) viewing your tax refund as "mad money"
D) all of the above
Answer: D
Q3) Once a sound financial plan is in place, there should be no need to ever change it.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Measuring Your Financial Health and Making a Plan
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) Current liabilities are those that can typically be paid off in full within twelve months.
A)True
B)False
Answer: True
Q2) Explain what goes on a balance sheet and its uses.
Answer: A personal balance sheet consists of three parts:assets, liabilities, and net worth.Assets include the value of monetary assets, investments, retirement plans, housing, automobiles, personal property, and "other" assets.Liabilities consist of current bills, credit card debt, housing, automobile loans, and "other" debt.Your net worth consists of the part of your assets that are clear and free of debt.It is found by subtracting liabilities from assets.The balance sheet is a useful tool to see your current financial position.It is a good barometer to gauge your financial net worth over time by comparing quarters or years.It also supplies the numbers needed for developing financial ratios to determine your financial health against common standards.
Q3) In some cases insolvency can lead to bankruptcy.
A)True
B)False
Answer: True
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Chapter 3: Understanding and Appreciating the Time Value of Money
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Someone has offered you the opportunity to purchase an IOU. The IOU will pay back a total of $500 in three years. How much would you be willing to pay for that IOU today if you want to earn an annual rate of return of 16%?
A) $320.33
B) $422.63
C) $292.63
D) $380.45
Answer: A
Q2) Your money will grow or compound ________ as the number of compounding periods per year becomes ________.
A) faster; smaller
B) faster; larger
C) slower; larger
D) slower; compounded
E) none of the above are correct
Answer: B
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Chapter 4: Tax Planning and Strategies
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Richard and Katarina's filing status should be ________.
A) head of household
B) married filing jointly
C) married filing separately
D) single
E) surviving spouse
Q2) If the Bajorshiks' income does not exceed the phase-out level of $110,000 in 2011, by how much will the child tax credit reduce their tax liability? (Assume that the child tax credit will be the same amount in 2010 as in 2011.)
A) Their tax liability will be reduced by $750.
B) Their tax liability will be reduced by $2,000.
C) Their tax liability will be reduced by $2,100.
D) Their tax liability will be reduced by $3,000.
Q3) Income on which the payment of taxes is postponed until some future date is called
A) tax-delayed
B) tax-deferred
C) tax-postponed
D) tax-tardy
E) none of the above
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Chapter 5: Cash or Liquid Asset Management
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) With online banking you have access to your accounts, and are able to conduct business transactions through the internet, your mobile phone or some other online device.
A)True
B)False
Q2) When you are considering different investment options and want to maximize your returns, be sure to compare the investments'
A) quoted rates.
B) APRs.
C) APYs.
D) None of the above.
Q3) How is Tony doing with his cash management?
A) He is doing pretty well since he has a lot of cash in his checking account.
B) He is doing pretty well since he pays his credit cards in full every month.
C) He is not maximizing his returns on his liquid assets.
D) He has a good checking account.
E) All but C are correct answers.
Q4) What is the importance of the APY?
Q5) Name the three Cs of choosing a financial institution.
Q6) Explain the advantages of credit unions. Are there any disadvantages to them?
Page 7
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Chapter 6: Using Credit Cards: The Role of Open Credit
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) The Truth In Lending Act requires that all consumer credit agreements disclose the ________ in bold print?
A) Effective Annual Rate (EAR)
B) Annual Percentage Rate (APR)
C) Monthly Stated Rate (MSR)
D) Nominal Interest Rate (NIR)
E) none of the above
Q2) Which of the following is not a typical potential problem that can occur in a credit bureau file?
A) You may be mixed up with someone else with a similar name.
B) Accounts may be listed as still open that are actually closed.
C) Accounts may be listed that you never had.
D) The wrong credit bureau handles your case.
E) A creditor may fail to report a payment or payments.
Q3) A credit bureau is a private organization that maintains credit information on individuals, which it allows subscribers to access for a fee.
A)True
B)False
Q4) List five signs that you have the credit card habit.
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Chapter 7: Using Consumer Loans: The Role of Planned
Borrowing
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which of the following does not require you to have a good credit rating to issue you a loan?
A) your family
B) savings and loan
C) commercial bank
D) All of the above require a good credit rating to issue a loan.
Q2) Congratulations! You have just graduated from college and are determining what your monthly student loan payments will be. After consolidating all of your loans, you have a balance of $18,000. At 8% APR for 10 years, what will your monthly payments be?
A) $1,866.66
B) $161.50
C) $218.39
D) $1,440.14
Q3) The 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended.
A)True
B)False
Q4) How do you know how much debt you can comfortably afford?
Q5) What are the opportunity costs associated with Student loans?
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Chapter 8: The Home and Automobile Decision
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193 Verified Questions
193 Flashcards
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Sample Questions
Q1) You are considering the purchase of an acre of land out in the country to build your future house on. You pay for an investigation of the public record to determine the current legal owner of the property. This is called a(n)
A) legal entity search.
B) title search.
C) appraisal search.
D) escrow search.
E) none of the above
Q2) Leasing a car may make sense for some people but there are disadvantages to leasing. What are the disadvantages to leasing a car verses purchasing the car outright?
Q3) An appraisal is an estimate of what your home and property are worth.
A)True
B)False
Q4) If you have just been transferred to a new city and plan to live in your new location for many years, buying a house is generally a better option than leasing for the first year.
A)True
B)False
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10
Chapter 9: Life and Health Insurance
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) With regard to health insurance and emotional and mental disorders
A) no coverage is ever provided for these conditions.
B) full coverage is always provided for these conditions.
C) limited coverage is always provided for these conditions.
D) The coverage varies by policy.
Q2) Tell how a PPO is different from a fee-for-service or HMO plan.
Q3) Why are health care costs so expensive at this time?
Q4) Traditional, fee-for-service plans are becoming rarer due to rising health care costs.
A)True
B)False
Q5) Most life insurance settlements are based on the named insured dying from an accidental death.
A)True
B)False
Q6) What is the major advantage of universal life insurance at any age?
Q7) Long-term care insurance may not be a good buy for people under the age of 40.
A)True
B)False
Q8) Describe the provisions you should consider in choosing a health care policy.
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Chapter 10: Property and Liability Insurance
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Suppose Lisa and Eric do not purchase an adequate amount of insurance on their home. In the event of a claim, they would pay a portion of it. This is the
A) inflation guard.
B) added liability.
C) replacement cost.
D) coinsurance provision.
E) 70 percent rule.
Q2) It is possible to have a different deductible for collision loss than you have for comprehensive physical damages.
A)True
B)False
Q3) Your written or video inventory of your assets should be kept in a safe place such as a lock box at your bank.
A)True
B)False
Q4) Your home is hit by a strong wind storm that causes serious damage to one end of it. The rest of your home is livable. What do you do?
Q5) Provide an explanation of Section II: Personal Liability Coverage.
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Chapter 11: Investment Basics
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166 Flashcards
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Sample Questions
Q1) Long-term capital gains have favorable tax treatment over earned income.
A)True
B)False
Q2) Tran purchased a house for a rental property for $100,000 five years ago. During the time he owned this rental, his net rental income was a total of $4,000. He just sold the property for $120,000. What was his average annual return on this investment?
A) 4.0%
B) 4.8%
C) 20%
D) 24%
Q3) The risk associated with the use of debt by the firm is business risk.
A)True
B)False
Q4) It is very tough to consistently beat the market.
A)True
B)False
Q5) Some types of investments expose you to multiple sources of risk.
A)True
B)False
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Chapter 12: Securities Markets
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130 Flashcards
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Sample Questions
Q1) You have been watching a stock that has dramatically increased in price for the last several days. Today it closed at $50 per share. You want to purchase this stock in the morning using your online brokerage account. You are willing to pay up to $53 a share but no higher. What type of purchase order should you use?
A) a stop-loss order
B) a good-til-cancel order
C) a market order
D) a limit order
Q2) You believe that the stock of MoabBikes will soon fall from its current price of $25 per share. You short 1,000 shares with your broker who has a 50% margin requirement. The price falls to $15 per share, but not before it pays a $5 dividend per share. Your commissions and other charges totaled $50. What was your total profit?
A) $5
B) $2,450
C) $2,500
D) $4,950
E) $9,950
Q3) Is Value Line useful? How is it useful?
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14
Chapter 13: Investing in Stocks
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160 Flashcards
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Sample Questions
Q1) The price/earnings ratio is an indication of how much investors are willing to pay for a dollar of the company's earnings.
A)True
B)False
Q2) Why is using the P/E ratio a very popular valuation tool?
Q3) A stock currently sells for $100 per share, and has earnings of $2.00 per share. What is the stock's P/E ratio?
A) 50.00
B) 25.00
C) 5.00
D) 1.00
Q4) Greg Jewell read about several companies that were performing relatively well despite the current recession. Stocks like these, that in some cases actually perform better during downturns in the economy, are called ________ stocks.
A) cyclical
B) speculative
C) defensive
D) growth
E) seasonal
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Chapter 14: Investing in Bonds and Other Alternatives
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Investors require a higher rate of return on bonds with higher bond ratings.
A)True
B)False
Q2) Most corporate bonds are tax-free bonds in the state the corporation is based in.
A)True
B)False
Q3) If you were considering the purchase of a bond issued by a state, county, or city you would be considering the purchase of a ________ bond.
A) state
B) municipal
C) government hedge
D) corporate
E) none of the above
Q4) If you are already retired and seek additional income, then bonds as an investment choice would be wise.
A)True
B)False
Q5) Tell what you will find in a bond listing in the Wall Street Journal.
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Chapter 15: Mutual Funds: An Easy Way to Diversify
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Net asset value is determined by taking the total market value of all the securities held by the mutual fund, subtracting out any liabilities, and dividing the result by the number of shares outstanding.
A)True
B)False
Q2) Suppose that the current value of all of a mutual fund's holdings is determined to be $750 million. The fund's liabilities are $125 million and it grew at 20% from last year. It currently has 45 million shares outstanding. What is the fund's NAV?
A) $12.00 per share
B) $13.89 per share
C) $14.40 per share
D) $16.80 per share
Q3) Which of the following funds would be the most appropriate investment for the average small investor?
A) No-load open-end fund
B) No-load closed-end fund
C) Front-end load fund
D) Back-end load fund
Q4) Provide a list of sources of information to evaluate mutual funds.
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Chapter 16: Retirement Planning
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Sample Questions
Q1) An employee's Social Security contributions are invested in a general fund account and will be made available for the employee at retirement.
A)True
B)False
Q2) Under a funded pension plan, the employer makes regular contributions to a trustee who collects and invests the retirement funds.
A)True
B)False
Q3) Defined-benefit pension plans are generally ________ and they lack ________.
A) contributory; divesting
B) noncontributory; divesting
C) contributory; portability
D) noncontributory; portability
E) vested; portability
Q4) Relate the pros and cons of defined-benefit plans.
Q5) Under a defined benefit plan you receive a promised or "defined" benefit payout at retirement.
A)True
B)False
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Chapter 17: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) A durable health care power of attorney allows you to designate another person to make life support decisions if you are unable to.
A)True
B)False
Q2) What should you do once your will has been drawn up?
Q3) A durable power of attorney means that the attorney who wrote the will for you is your legal guardian in case you become incapacitated and can't make decisions yourself.
A)True
B)False
Q4) If you have children from a previous marriage and you get remarried and own property jointly with your new spouse, then tenancy by the entirety should be sufficient for you if you wish your children to inherit your property.
A)True
B)False
Q5) Provide a description of the basic features and clauses found in a will. What might invalidate your will?
Q6) Make a list of ways to avoid probate.
Q7) Provide some common sense approaches to estate planning.
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Chapter 18: Financial Life Events Fitting the Pieces Together
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Sample Questions
Q1) Which of the following statistics concerning women are NOT true?
A) About 75% of the elderly people living in poverty are women.
B) 80% of all widows who are now living in poverty were not living in poverty while their husbands were still alive.
C) Almost half of all single elderly women get most of their income from Social Security.
D) Only 22% of women 65 and older received pension benefits, versus 29% of men, and the median amount of the women's pension income was over twice that of men.
Q2) The best investment advice for younger people is to be conservative and avoid risk. A)True
B)False
Q3) If you and your spouse have different money management styles, it may be wise to maintain separate checking accounts.
A)True
B)False
Q4) List the main "life events" as discussed in your textbook.
Q5) Why are stocks risky, but not as risky as not investing in them?
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