Type:
Test Bank
Resource:
Personal Finance Skills
Edition:
1st Edition
Author(s):
Vickie L. Bajtelsmit
TEST BANK TO ACCOMPANY
PERSONAL FINANCE Skills for Life
Vickie L. Bajtelsmit Colorado State University
Prepared by Cheryl McGaughey Angelo State University
Chapter 1
The Financial Planning Process True-False Why Study Personal Financial Planning
1.
Personal finance is a specialized area of study that focuses exclusively on investments and retirement planning.
(f, easy, p. 3) 2.
Personal financial planning skills are only applicable in the early years of a person's life.
(f, easy, p. 3) 3.
The primary goal of personal financial planning is to develop and achieve financial goals.
(t, easy, p. 3) 4.
Good financial planning can also have a positive social and psychological benefit.
(t, moderate, p. 3) 5.
A common reason many people avoid financial planning is the lack of available information.
(f, moderate, p. 4) Personal Financial Planning: The Five Steps 6.
The first step in the personal financial planning process is to analyze your current financial position.
(t, moderate, p. 4) 7.
Long-term goals are more likely undergo change than are short-term goals.
(f, difficult, p. 5)
1
8.
Every strategy for achieving financial goals has both a cost and a benefit.
(t, moderate, p. 5) 9.
An effective financial plan should be inflexible in order to achieve the goals set.
(f, easy, p. 6) Factors that Influence Personal Financial Planning 10.
If your debts are larger than your assets, you have a negative wealth position.
(t, moderate, p. 7) 11. 50s.
The beginning of the wealth accumulation phase usually occurs in a person's mid-
(f, moderate, p. 7) 12.
When a person begins to spend their accumulated wealth, this is known as the distribution phase.
(f, moderate, p. 7) 13.
Risk can be defined as the certainty of a potential loss.
(f, moderate, p. 8) 14.
If a person is characterized as an optimist, this is a statement regarding that person's values.
(f, moderate, p. 8) 15.
Risk-takers are more likely to be male, married with children, educated, and high income.
(f, difficult, p. 8) 16.
As inflation increases, the purchasing power of money decreases.
(t, moderate, p. 9) 17.
The CPI is the effective inflation rate for all regions of the United States.
(f, moderate, p. 9)
2
18.
Wages often do not increase at the same rate as prices.
(t, easy, p. 11) 19.
Interest rates are both the cost of borrowed money as well as the return on invested money.
(t, moderate, p. 12) 20.
Interest rates are determined by the government.
(f, moderate, p. 12) 21.
The U.S. Treasury Department controls the money supply in the United States.
(f, easy, p. 12) 22.
The interest rate that banks charge each other for short-term loans is known as the fed funds rate.
(t, easy, p. 12) 23.
A change in the fed funds rate will result in a change in other short-term interest rates but not in long-term interest rates.
(f, moderate, p. 12) 24.
Both inflation and Federal Reserve actions can cause interest rates to move up or down.
(t, moderate, p. 12) 25. Differences in interest rates on different types of loans at the same point in time are primarily due to differences in maturities of the loans. (f, moderate, p. 13) Making Effective Decisions 26.
If you are considering working part-time at a second job in addition to your regular one, you should only consider marginal costs and marginal benefits, not the total costs and benefits of both jobs.
(t, difficult, p. 16)
3
27.
A major opportunity cost for college students is the income they will forego over the years they are in college.
(t, moderate, p. 16) 29.
One of the biggest mistakes people make in their financial planning assumptions is to be overly pessimistic.
(f, easy, p. 15) Selecting Qualified Financial Planning Professionals 30.
Financial planners must have a college degree with an emphasis or major in business.
(f, moderate, p. 18)
Multiple Choice Why Study Personal Financial Planning 1.
Which of the following is not normally considered an area of personal finance?
a. b. c. d.
budgeting investments choice of a career choice of a marriage partner
(d, easy, p. 3) 2.
Which of the following is the best definition of personal finance?
a. b. c. d.
The study of individual and household financial decisions. The study of individual investment planning. The study of personal wealth The study of personal money management
(a, moderate, p. 3)
4
3.
Which of the following is not a typical reason people avoid financial planning?
a. b. c. d.
They believe they are too busy. They believe their finances are in good shape. They fear failure. They believe their math and finance skills are lacking.
(b, difficult, p. 3-4) 4.
Which of the following is not one of the steps in the personal financial planning process?
a. b. c. d.
developing short-term and long-term financial goals identifying and evaluating alternative strategies for achieving goals implementing a plan for achieving goals determining appropriate risk level of participant
(d, moderate, p. 4-6) Factors that Influence Personal Financial Planning 5.
When people begin to spend their wealth in their retirement years, this is referred to as:
a. b. c. d.
deferring decumulating distributing disposing
(b, moderate, p. 7) 6.
A person's fundamental beliefs concerning what is important in life are referred to as:
a. b. c. d.
values attitudes opinions judgments
(a, moderate, p. 7)
5