chapter 01 kdh: personal finance

Finance 1200 Fall 2011 Test 1 Chapters 1-4

True / False Questions

1. (p. 2) Financial planning has specific techniques that will be effective for every individual FALSE

2. (p. 13) Inflation reduces the buying power of money. TRUE

3. (p. 9) Planning to buy a house is an example of an intangible goal. FALSE

4. (p. 16) Opportunity costs refer to what a person gives up when making a decision. TRUE

5. (p. 17) Time value of money refers to changes in consumer spending when inflation occurs. FALSE

6. (p. 16) Most decisions have only a few alternatives from which to choose. FALSE

Multiple Choice Questions

7. (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.

8. (p. 13) With an inflation rate of 9 percent, prices would double in about ___________ years. A. 4B. 6C. 8D. 10E. 12

9. (p. 12) The stages that an individual goes through based on age, financial needs, and family situation is called the: A. financial planning process.B. budgeting procedure.C. personal economic cycle.D. adult life cycle.E. tax planning process.

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10. (p. 22) 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.

11. (p. 22) A question associated with the saving component of financial planning is: A. Do you have an adequate emergency fund?B. Is your will current?C. Is your investment program appropriate to your income and tax situation?D. Do you have a realistic budget for your current financial situation?E. Are your transportation expenses minimized through careful planning?

12. (p. 8) As Jean Tyler plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal. A. intermediateB. long-termC. short-termD. intangibleE. durable

13. (p. 9) Which of the following goals would be the easiest to implement and measure its accomplishment? A. "Reduce our debt payments."B. "Save funds for an annual vacation."C. "Save $100 a month to create a $4,000 emergency fund."D. "Invest $2,000 a year for retirement."E. "Increase our emergency fund."

14. (p. 17) The time value of money refers to: A. personal opportunity costs such as time lost on an activity.B. financial decisions that require borrowing funds from a financial institution.C. changes in interest rates due to changes in the supply and demand for money in our economy.D. increases in an amount of money as a result of interest.E. changing demographic trends in our society.

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15. (p. 18) Which type of computation would a person use to determine current value of a desired amount for the future? A. simple interestB. future value of a single amountC. future value of a series of depositsD. present value of a single amount

16. (p. 13) 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 yearsB. 24 yearsC. 18 yearsD. 12 yearsE. 6 years

17. (p. 13) When prices are increasing at a rate of 6 percent, the cost of products would double in about how many years? A. 7.2 yearsB. 10 yearsC. 6 yearsD. 12 yearsE. 18 years

18. (p. 18) Future value calculations involve: A. discounting.B. add-on interest.C. compounding.D. simple interest.E. an annuity.

19. (p. 18) 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 amountB. simple interestC. present value of a single amountD. present value of a series of depositsE. future value of a series of deposits

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20. (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.

21. (p. 5) Which of the following is an example of opportunity cost? A. renting an apartment near schoolB. saving money instead of taking a vacationC. setting aside money for paying income taxD. purchasing automobile insuranceE. using a personal computer for financial planning

22. (p. 5) The uncertainty associated with decision making is referred to as: A. opportunity cost.B. selection of alternatives.C. financial goals.D. personal values.E. risk.

23. (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.

24. (p. 8) Which of the following is usually considered a long-term financial strategy? A. creating a budgetB. using savings to pay off a loan earlyC. renting an apartment to save for the purchase of a homeD. investing in a growth mutual fund to accumulate retirement fundsE. purchasing auto insurance to cover the needs of dependents

25. (p. 13) When prices are rising at a rate of 3 percent, the cost of products and services would double in ______ years. A. 3B. 6C. 12D. 24E. 36

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26. (p. 14) The annual price increase for consumer goods and services measured by the Bureau of Labor Statistics is referred called ________. A. deflationB. inflationC. the consumer price indexD. the price calculatorE. goods and all of the above


27. (p. 42) A job tends to have less of a long-term commitment to a field than a career. TRUE

28. (p. 42) A possible opportunity cost associated with career advancement is a need to relocate your household. TRUE

29. (p. 44) An interest inventory measures a person's aptitudes. FALSE

30. (p. 50) Libraries usually have a variety of information sources for career planning and job exploration. TRUE

31. (p. 57) A tax-exempt employee benefit is usually more advantageous than a tax-deferred benefit. TRUE

Multiple Choice Questions 32. (p. 42) Compared to a job, a career: A. is often less financially rewarding.B. requires minimum training.C. demands regular updating of knowledge.D. has limited opportunities for advancement.E. is one who engage in for your lifetime.

33. (p. 42) A (n) ____________ is an employment position that is obtained mainly to earn money. A. careerB. jobC. internshipD. apprenticeshipE. cooperative

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34. (p. 43) Mathematical abilities, problem-solving skills, and physical dexterity are examples of: A. interests.B. survival skills.C. aptitudes.D. occupational attitudes.E. on-the-job training.

35. (p. 58) 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.

36. (p. 57) Federal tax-deferred employee benefits are: A. not subject to federal income tax.B. not subject to state income tax.C. taxed at some future time.D. are taxed at a special rate.E. only available to union employees.

37. (p. 46) Caroline lives in City A and earns $50,000 per year. The cost of living index in City A is .8. She is considering a move to City B which has a cost of living index of .9. How large a salary will she require in City B to maintain her current standard of living? A. $44,444B. $40,000C. $56,250D. $45,000E. $50,000

38. (p. 58) Joseph is eligible for a nontaxable life insurance benefit with an annual premium of $400 paid entirely by his employer. Assuming Joseph is in a 25% bracket, how much would he have to earn to pay for this benefit with after-tax dollars? A. $425.00B. $533.33C. $433.33D. $500.00E. $400.00

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39. (p. 78-79) Opportunity costs are only associated with money management decisions involving long-term financial security. FALSE

40. (p. 80) Financial records that are referred to on a regular basis should be kept in a safe-deposit box. FALSE

41. (p. 82) A personal balance sheet reports your income and expenses. FALSE

42. (p. 82) A person's net worth is the difference between the value of the items owned and the amounts owed to others. TRUE

43. (p. 83) Furniture, jewelry, and an automobile are examples of liquid assets. FALSE

44. (p. 86) Take-home pay is a person's earnings after deductions for taxes and other items. TRUE


45. (p. 78) Opportunity costs refer to: A. current spending habits.B. changing economic conditions that affect a person's cost of living.C. storage facilities to make financial documents easily available.D. trade-offs associated with financial decisions.E. avoiding the use of consumer credit.

46. (p. 81) 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.

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47. (p. 82) Which of the following are considered to be personal financial statements? A. budget and credit card statementsB. balance sheet and cash flow statementC. checkbook and budgetD. tax returnsE. bank statement and savings passbook

48. (p. 82) 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.

49. (p. 82) The current financial position (including net worth) of an individual or family is best presented with the use of a(n): A. budget.B. cash flow statement.C. balance sheet.D. bank statement.E. time value of money report.

50. (p. 82) Items that you own with a monetary worth are referred to as: A. liabilities.B. variable expenses.C. net worth.D. income.E. assets.

51. (p. 84) Liabilities are amounts representing: A. debts.B. items of value.C. living expenses.D. taxable income.E. current assets.

52. (p. 85) Which one of the following presents a summary of income and outflows for a period of time? A. balance sheetB. bank statementC. investment summaryD. cash flow statementE. asset report

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53. (p. 86) Total earnings of a person minus the deductions for taxes and other items is called: A. budgeted income.B. gross pay.C. net worth.D. total revenue.E. take-home pay.

54. (p. 86) A common deduction from a person's paycheck is for: A. interest.B. taxes.C. rent.D. unemployment.E. current liabilities.

55. (p. 87-88) Payments that do not vary from month to month are ____________ expenses. A. fixedB. usageC. variableD. luxury

56. (p. 93) If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a: A. variance.B. deficit.C. fixed living expense.D. budget reduction.E. contribution to net worth.

57. (p. 93) A budget deficit would result when a person's or family's: A. actual expenses are less than planned expenses.B. actual expenses are greater than planned expenses.C. actual expenses equal planned expenses.D. assets exceed liabilities.

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58. (p. 82) Karen Price has created a financial statement for herself that lists all of the assets she owns as well as the debts she owes. This would be an example of: A. money management.B. opportunity cost analysis.C. a balance sheet.D. a liquidation exercise.E. a budget variance.

59. (p. 82) A family has a net worth of $156,000 and liabilities of $167,000, what is the amount of their assets? A. $11,000B. $156,000C. $167,000D. $323,000

60. (p. 83-84) Katherine Kocher has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a 2-year certificate of deposit worth $5,500 and she has a retirement account worth $38,550. What is the total value of her assets? A. $127,850B. $98,000C. $168,600D. $159,900E. $171,900

61. (p. 85) This month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting in a A. balanced budget.B. surplus of $150.C. deficit of $150.D. surplus of $3,100.E. deficit of $2,950.

62. (p. 87) A person has $1,250 in liabilities, monthly savings of $200, and monthly gross income of $2,500. What is the person's savings ratio? A. 0.52B. 0.08C. 2.35D. 0.16E. 12.58

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63. (p. 93) The Hernandez family budgets $420 a month for food. Last month they spent $413, which creates a A. budget surplus of $7.B. budget deficit of $7.C. budget surplus of $420.D. budget deficit of $413.E. balanced budget.


64. (p. 123) Taxes are only considered as financial planning activities in April. FALSE

65. (p. 106) A state may impose a personal property tax. TRUE

66. (p. 106) A general sales tax is also referred to as an excise tax. FALSE

67. (p. 106) A tax on the value of automobiles, boats, or furniture is referred to as a personal property tax. TRUE

68. (p. 106) An estate tax is imposed on the value of an individual's property at the time of his or death. TRUE

69. (p. 109) An exclusion is earnings not included in taxable income. TRUE

70. (p. 109) Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income. TRUE

72. (p. 113) A tax credit is an amount subtracted directly from the amount of taxes owed. TRUE

73. (p. 117) A person's filing status is affected by marital status and dependents. TRUE


74. (p. 106) The ______________ property tax is based on the value of land and buildings at some point in time. A. personalB. real estateC. directD. proportionalE. regressive

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75. (p. 108) What type of tax is imposed on the value of an individual's property at the time of his or her death? A. inheritanceB. exciseC. giftD. personal propertyE. estate

76. (p. 113) Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket would result in after-tax earnings of: A. $1,600B. $1,152C. $1,100D. $448E. $152

77. (p. 112) 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. 8.6B. 10.3C. 12.3D. 14.2E. 16.7

78. (p. 109) A person has $4,000 in medical expenses and an adjusted gross income of $32,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation? A. $300B. $1,600C. $2,400D. $4,000E. $32,000

79. (p. 109) Which of the following would result in a reduction of taxable income? A. portfolio incomeB. tax creditsC. exclusionsD. passive incomeE. earned income

80. (p. 109) Which one of the following is not included in gross income? A. Tax credit.B. Exemption.C. Exclusion.D. Earned income.E. Portfolio income.

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81. (p. 108) Which of the following would be deducted from gross income to obtain adjusted gross income? A. alimony paymentsB. mortgage interestC. medical expensesD. foreign income exclusionE. charitable contributions

82. (p. 111) 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.

83. (p. 113) A tax ____________ is an amount subtracted directly from the amount of taxes owed. A. creditB. exemptionC. deductionD. exclusionE. shelter

84. (p. 113) 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.

85. (p. 118) The Form 1040 is most helpful to a person who: A. is single with no other exemptions.B. makes less than $50,000 with no interest or dividends.C. itemizes deductions.D. has exempt income.E. has a simple tax situation.

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86. (p. 121) Itemized deductions are recorded on: A. Form 1040A.B. Schedule A.C. Schedule B.D. Form 2106.E. Form 1040 B

87. (p. 113) An itemized deduction of $500 with a 36 percent tax rate would reduce a person's taxes by: A. $500.B. $36.C. $464.D. $280.E. $180.

88. (p. 106) The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be? A. general sales taxB. excise taxC. personal property taxD. income taxE. estate tax

89. (p. 130) A allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical and child care costs. A. tax creditB. tax deductionC. flexible spending accountD. tax deferred investmentE. tax exempt investment

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chapter 01 kdh: personal finance

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