Personal Financial Planning
Study Guide Questions
Course Introduction
Personal Financial Planning is an essential course designed to equip students with the knowledge and skills necessary to effectively manage their personal finances. The course covers a wide range of topics, including budgeting, saving, investing, insurance, retirement planning, tax strategies, and debt management. Through practical case studies and real-world applications, students learn how to create comprehensive financial plans tailored to their life goals and circumstances. Emphasis is placed on responsible decision-making, ethical considerations, and adapting to changing financial environments, preparing students to achieve financial stability and long-term economic success.
Recommended Textbook
Personal Finance 8th Edition by Arthur J. Keown
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17 Chapters
2679 Verified Questions
2679 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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110 Flashcards
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Sample Questions
Q1) One purpose of financial planning is to help you legally reduce the amount of taxes you have to pay on your earnings.
A)True
B)False
Answer: True
Q2) What is the relationship between earnings,education,and standard of living?
Answer: There is a direct relationship between earnings and standard of living and education.The more education an individual has,the more he or she will earn in general and thus enjoy a higher standard of living.The opposite holds true also.The less education one has the lower the earnings and standard of living.
Q3) Personal financial planning can help you to
A)deal with unplanned health issues.
B)minimize your tax payments to Uncle Sam.
C)minimize your chances of personal bankruptcy.
D)have enough money for a comfortable retirement.
E)all of the above.
Answer: E
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) How do you calculate the current ratio,debt ratio,and savings ratio?
Answer: Current ratio is calculated by dividing total current assets by total current liabilities.A ratio of 1.0 will get you by,but a ratio of 2.0 or more is preferred.The debt ratio is determined by dividing total debt or liabilities by total assets.The savings ratio is found by dividing the income available for savings and investments by income available for living expenses.
Q2) Cameron has $17,000 in monetary assets and $4,000 in current liabilities.What is his current ratio?
A)17,000/4,000
B).535 times
C)5 times
D)13,000/4,000
Answer: A
Q3) If your liabilities are greater than the value of your assets you are considered
A)unstable.
B)bankrupt.
C)insolvent.
D)unbalanced.
Answer: C
Page 4
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Chapter 3: Understanding and Appreciating the Time Value of Money
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134 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) Compounding is when the interest you have already earned on an investment earns interest.
A)True
B)False
Answer: True
Q3) Approximately how long will it take Enrique's investment to grow into $2,000?
A)Seventy-two months
B)Six years
C)Nine years
D)Twelve years
Answer: C
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Chapter 4: Tax Planning and Strategies
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138 Flashcards
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Sample Questions
Q1) You pay taxes only when you sell stock and realize the gain.
A)True
B)False
Q2) Standard deductions need yearlong record-keeping and thorough and accurate documentation.
A)True
B)False
Q3) From the list below choose the item that is not a permissible tax deduction.
A)State,local,and real estate taxes
B)Home equity loan interest on debt up to $100,000
C)Auto,truck,or van loan interest
D)Interest on money borrowed to invest,within the IRS limits based on investment income
E)Unreimbursed job-related expenses and tax preparation costs within the IRS limits
Q4) A personal exemption is an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return.
A)True
B)False
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6
Chapter 5: Cash or Liquid Asset Management
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121 Flashcards
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Sample Questions
Q1) Keeping your funds in liquid assets is riskier than keeping them in illiquid assets and therefore investors require a higher expected rate of return on liquid assets.
A)True
B)False
Q2) If you only use your debit card and ATM card and rarely write paper checks,overdraft protection is still a good thing to have.
A)True
B)False
Q3) A tax free investment will always have a higher after-tax return than a taxable investment.
A)True
B)False
Q4) For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services.
A)True
B)False
Q5) What are the four questions you should answer when looking for a financial institution?
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Chapter 6: Using Credit Cards: the Role of Open Credit
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167 Flashcards
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Sample Questions
Q1) A(n)________ card is a credit card that does not offer revolving credit and requires full payment of the balance at the end of each month.
A)T&E
B)premium
C)affinity
D)traditional charge account
E)single-purpose
Q2) List the three types of credit card users.
Q3) Your credit score may affect how much you pay for health insurance.
A)True
B)False
Q4) The ________ is the percentage of the credit card sale that the retailer owes to the credit card company.
A)retailer credit acceptance fee
B)card usage allowance
C)merchant's discount fee
D)franchise fee
Q5) List four ways to avoid credit card fraud.
Q6) Compare and contrast the average,previous,and adjusted balance methods.
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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124 Flashcards
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Sample Questions
Q1) What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money,and at maturity you repay the entire principal?
A)Simple interest method
B)Partial amortization method
C)Discount method
D)Add-on method
E)None of the above
Q2) The loan contract is a formal document called a(n)________ and may contain a(n)________ specifying who retains control over the item being purchased in the case of default.
A)agreement;insurance clause
B)indenture;security agreement
C)note;security agreement
D)agreement;indenture
E)note;legal transaction
Q3) The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis.
A)True
B)False
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Chapter 8: The Home and Automobile Decision
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217 Flashcards
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Sample Questions
Q1) Because a co-op is technically not a "home" it does not charge a homeowner's fee.
A)True
B)False
Q2) The rate cap on an ARM protects the borrower.
A)True
B)False
Q3) When making a smart purchase you don't need to consider such charges as delivery fees,installation fees or service costs as these are already included in the purchase price.
A)True
B)False
Q4) An attorney will draw up a contract for the purchase of a house.What provisions should you have in it?
Q5) A loan origination fee is a fee paid to the lender,generally in the $1,200 to $1,300 range,and covers some of their costs of processing and finalizing the loan.
A)True
B)False
Q6) What are the typical sources of mortgages?
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Chapter 9: Life and Health Insurance
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Sample Questions
Q1) How is variable life different from universal life and term insurance? Who is it best suited for?
Q2) You want to get a good buy on your life insurance contract.You find a book that compares insurance costs by incorporating the time value of money into its calculations.This method allows you to select wisely using the A)interest-adjusted net cost method.
B)traditional net cost method.
C)variable method.
D)comparison cost index.
Q3) Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.
A)True
B)False
Q4) Tell how a PPO is different from a fee-for-service or HMO plan.
Q5) Which of the types of cash-value policies are permanent insurance?
Q6) Compare and contrast group and individual health insurance policies.
Q7) Tell about the pros of group term life insurance.
Q8) Explain the advantages and disadvantages of medical reimbursement accounts.
Q9) Describe the pros and cons of major medical insurance.
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Chapter 10: Property and Liability Insurance
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161 Flashcards
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Sample Questions
Q1) Outline the considerations for choosing the amount of homeowner's insurance you need.
Q2) In 2017,what percent of auto collisions involved cell phones?
A)50
B)10
C)25
D)33
Q3) To make sure all of your personal property is paid for in the event of a loss,it is a good idea to make an inventory of all household contents.Tell what should be included.
Q4) Your backyard shed was damaged by a windstorm.Your coverage is based under Coverage D: Loss of Use.
A)True
B)False
Q5) The personal automobile policy (PAP)provides broad coverage,but there are a number of standard exceptions.Give five of them here.
Q6) Most companies allow six endorsements or supplemental coverages to meet their customers' needs.Name and describe the six.Which one is unique and stands apart from the others?
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Chapter 11: Investment Basics
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325 Flashcards
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Sample Questions
Q1) Merrill Lynch,Edward Jones and Morgan Stanley Smith Barney are all full service brokers.
A)True
B)False
Q2) If you purchase some shares of stock
A)you may earn dividends.
B)you will definitely earn dividends.
C)you may earn coupon interest.
D)you will definitely earn coupon interest.
Q3) Securities include both ________ and ________.
A)stocks;mutual funds
B)bonds;mutual funds
C)real estate;stocks
D)stocks;bonds
E)bonds;money market funds
Q4) If you earned a negative 5% return on your investments while the overall stock market was down 9% then you have outperformed the market.
A)True
B)False
Q5) Explain the bid and ask price system when trading in stocks.
Page 13
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Chapter 12: Investing in Stocks
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190 Flashcards
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Sample Questions
Q1) The dividend yield on a share of common stock is
A)available at most large companies.
B)the amount of annual dividends divided by the market price of the stock.
C)the taxes you pay on the reinvested dividends.
D)all of the above.
E)only A and B.
Q2) Briefly describe the SWOT analysis.
Q3) Stocks reduce risk by portfolio rebalancing.
A)True
B)False
Q4) The S&P 500
A)is the oldest and most widely quoted of the stock indexes.
B)is a narrower index than the DOW.
C)includes some stocks from the OTC market.
D)all of the above
Q5) Common stockholders have a superior claim on a company's assets over creditors and bondholders.
A)True
B)False
Q6) What factors can effect the market price of a stock?
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Chapter 13: Investing in Bonds and Other Alternatives
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149 Flashcards
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Sample Questions
Q1) When you are holding preferred stock that you can exchange for a predetermined number of shares of common stock,you are holding ________ stock.
A)reissued preferred
B)migratory preferred
C)convertible preferred
D)class B common
E)none of the above
Q2) Interest payments on municipal bonds are exempt from federal taxes and state taxes as long as you live in the state in which the bonds were issued.
A)True
B)False
Q3) What is the purpose of the call provision on some bonds?
Q4) The issuer of the bond is effectively loaning money to the bondholder when the bond is purchased.
A)True B)False
Q5) Bonds reduce risk through diversification.
A)True
B)False
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141 Flashcards
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Sample Questions
Q1) Hedge fund managers charge very high fees,generally taking ________ of the assets under management (even when the fund loses money)along with ________ of the profits-and some take even more.
A)1 percent;10 percent
B)2 percent;20 percent
C)2 percent;10 percent
D)5 percent;25 percent
Q2) In what ways do unit investment trusts and real estate investment trusts resemble mutual funds?
Q3) A mutual fund's expense ratio compares the fund's expenses to its total assets.
A)True
B)False
Q4) 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
Q5) What are the advantages of index funds?
Q6) Provide a list of sources of information to evaluate mutual funds.
Page 16
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Chapter 15: Retirement Planning
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Sample Questions
Q1) Robin was born after 1960,therefore,the retirement age for her to receive full Social Security benefits is 65.
A)True
B)False
Q2) With a traditional IRA and a Roth IRA,you can make withdrawals at any time with no penalties.
A)True
B)False
Q3) What are some very important things to monitor concerning your retirement plan,both before and after retirement?
Q4) A(n)________ is a tax-deferred retirement plan that is essentially the same as a 401(k)plan,except that it is aimed at employees of schools and charitable organizations.
A)404(a)
B)402(b)
C)403(b)
D)007(a)
E)none of the above
Q5) Relate the pros and cons of defined-benefit plans.
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) A legal entity in which you control the assets and can receive income,but also have the option to leave or remove assets,is called a(n)
A)family trust.
B)revocable living trust.
C)irrevocable living trust.
D)testamentary trust.
Q2) The individual you name who will care for your minor aged children is known as their A)executor.
B)beneficiary.
C)guardian.
D)personal representative.
E)Only A and B are correct.
Q3) 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
Q4) Identify three advantages and three disadvantages of revocable living trusts.
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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Sample Questions
Q1) When you get married,by law you must have joint credit card accounts instead of individual accounts.
A)True
B)False
Q2) There are always positive things you can do to change your credit score so it is worth the time to try and manage it.
A)True
B)False
Q3) Given the current divorce rate in the country if one spouse has good credit established,then it is equally important for the other spouse to establish credit in his or her own name.
A)True
B)False
Q4) At the beginning of 2016,according to CreditCards.com and Cardweb.com,the average credit card debt per household with at least one credit card was $16,048,up from $2,985 in 1990.
A)True
B)False
Q5) Why is it more challenging for women to become financially security?
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