Personal Financial Planning, 13e Gitman TB TestBank

Personal Financial Planning, 13e Gitman TB TestBank Personal Financial Planning, 13e Gitman TBChapter 1—Understanding the Financial Planning Process TRUE/FALSE 1. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or group. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 2. Your average propensity to consume is the percentage of each dollar of income, on the average, that is spent for current needs rather than savings. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 3. A good financial plan completed when one is in their 30s will typically last a lifetime. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 4. Financial planning is a continuing, life-long process. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 5. Financial planning can improve your standard of living. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 6. Current consumption is inversely related to saving for the future. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 7. About 20% of Americans say retirement planning is their most pressing financial concern. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 8. The most effective way to achieve financial objectives is through financial planning. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest RatesKEY: Bloom's: Comprehension 9. Defining financial goals is an important first step in personal financial planning process. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 10. Two persons with equal average propensities to consume will not necessarily have equal standards of living because of differences in income. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation 11. The need for financial planning declines as your income increases. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 12. Current consumption effects future consumption. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 13. A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation 14. A person making $35,000 and spending $30,800 has an average propensity to consume of 80%. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation 15. Most families find it difficult to discuss money matters. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 16. Average propensity to consume refers to how much of your money you plan to save in your financial plan. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 17. Tangible assets are earning assets that are held for the returns they promise.ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 18. Financial assets are paper assets, such as savings accounts and securities. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 19. Mutual funds are examples of financial assets. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 20. Spending for your child's private-school education is an example of deferred consumption. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 21. Wealth can be defined as the total value of all the things you own. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 22. Wealth is the key consideration is establishing financial goals as it is the measure of value in financial transactions. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 23. Financial assets include investments such as stocks and bonds. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 24. Utility refers to the amount of satisfaction a person gets from buying certain items. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 25. A successful financial plan will be based on a person's goals. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge26. Your personal value system will shape your attitude toward money and wealth accumulation. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 27. It is possible to draw up one financial plan that will work for most people. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 28. Financial planning is a dynamic process. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 29. The first step in the financial planning process is to develop financial plans and strategies to achieve goals. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 30. Money can be an emotional factor that may affect a person's financial plans. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 31. Long-term goals are typically for periods of over 6 years. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 32. Saving $3,000 for a large, flat-screen TV within the next 3 years is an example of a short-term goal. ANS: F PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 33. Short-term goals include things one wants to achieve in a year or less. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 34. Debt is another word for liability. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application35. Insurance provides a way to make money on unfortunate events. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 36. Employee benefits can typically be transferred to a new job when one changes employers. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 37. Your house is an example of a tangible asset. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 38. For most people working in large firms, employee benefits are an important part of their financial planning. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 39. A personal computer can be very useful in assisting one with their financial planning. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 40. A financial goal that would be important in all stages of the life cycle is creating and maintaining an emergency fund. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 41. Government controls consumers and businesses by regulation and taxation. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 42. Businesses are a key part of the circular flow of income that sustains our free enterprise system. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 43. Consumer choices ultimately determine the kinds of goods and services businesses will provide. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-4NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 44. GDP refers to the total earnings of American workers during a year. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 45. Consumers affect businesses by their choices of what goods and services to purchase and by choosing whether they will spend or save their incomes. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 46. How long you invest is not nearly as important as the rate of interest you can earn on your investments. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 47. The longer you wait to begin retirement planning, the less you will likely have in your retirement fund. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 48. Inflation means price levels have declined. ANS: F PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 49. The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 50. Typically, higher levels of education are rewarded with higher income over the lifetime. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 51. Cities with higher costs of living also experience higher rates of inflation. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge52. Accumulating wealth for later years is called estate planning. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 53. High interest rates after the financial crisis of reflect the Federal Reserve’s efforts to tighten, or reduce, the money supply. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 54. The government employs monetary and fiscal policy to ensure the economy always remains stable. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 55. A strong economy leads to higher levels of employment. ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 56. An economic contraction usually begins after a trough is reached. ANS: F PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 57. The financial crisis of 2008 and 2009 was the first depression the U.S. has experienced in 75 years. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Synthesis MULTIPLE CHOICE 1. Personal financial management is important because it a. controls inflation. b. limits consumption. c. uses money as an end. d. makes personal financial goals easier to achieve. e. lessens economic differences among individuals. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 2. Financial planning can help us to a. control inflation. b. spend wisely. c. control unemployment rates. d. a and b. e. a, b, and c. ANS: B PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest RatesKEY: Bloom's: Comprehension 3. The last step in the financial planning process is to a. develop financial plans and strategies to achieve goals. b. use financial statements to evaluate results of plans and budgets, taking corrective action as required. c. implement financial plans and strategies. d. redefine goals and revise plans and strategies as personal circumstances change e. periodically develop and implement budgets to monitor and control progress toward goals. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 4. The term most closely associated with quality of life is a. wealth. b. consumption. c. education. d. standard of living. e. money. ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 5. A primary determinant of your quality of life is a. a tax bill. b. tangible property. c. wealth. d. motivation. e. income potential. ANS: C PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 6. The average propensity to consume refers to the a. dollars of income spent for current consumption. b. percentage of income saved. c. expenditures for the minimum necessities of life. d. percentage of income spent for current consumption. e. fact that people with higher incomes spend more for the necessities of life. ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 7. Becky graduated with a master degree in Personal Financial Planning. After working two years in a small financial planning firm, Becky earns $60,000 annually and saves $10,000 a year. What is her average propensity to consume? a. 16.7% b. 25.5% c. 75.7% d. 83.3% e. 95.5%ANS: D PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation 8. When setting financial goals, one should typically start by setting a. short-term goals. b. Intermediate-term goals. c. long-term goals. d. a and b e. b and c ANS: C PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 9. Which of the following goals is stated in a way that is most useful for developing a financial plan? a. Make a $12,000 down payment on an automobile in 4 years b. Retire with a comfortable lifestyle in 25 years c. Buy a $125,000 house in 6 years d. Purchase a $40,000 boat e. Join the country club when retired in 20 years ANS: A PTS: 1 DIF: Challenging OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 10. Generally, as income rises, the average propensity to consume a. stabilizes. b. drops to zero. c. increases. d. becomes erratic. e. decreases. ANS: E PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 11. The amount of money we set aside for future consumption will be determined by a. our level of current wealth. b. how much we currently earn and spend. c. our education level. d. the current needs of our family. e. the cost of life's necessities. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 12. Money is a. the reason for all transactions. b. a medium of exchange. c. the purpose of our economy. d. a medium of consumption. e. a measure of propensity to consume.ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 13. Family financial goals should be a. very general in nature. b. realistically attainable. c. individually determined. d. set once for a lifetime. e. reserved for retirement planning. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 14. Utility refers to a. the satisfaction you receive from purchasing something. b. how much money you receive during the year. c. the total of your spending for the year. d. the value of your investments at any given time. e. none of these. ANS: A PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 15. The main reason to do personal financial planning is to a. minimize overall costs. b. minimize overall utility. c. assign monetary value to consumption. d. maximize overall utility. e. stabilize overall utility. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 16. The most important financial planning for young people concerns a. career. b. insurance. c. investment. d. taxes. e. retirement. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 17. Martha is 80 and has a very high net worth. Her most important financial concern is probably her a. career. b. employee benefits. c. estate. d. insurance. e. savings.ANS: C PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 18. Sam and Lele are in their late 20s with 3 young children. Their most important financial planning concerns would probably include all of the following except a. asset acquisition planning. b. liability and insurance planning. c. retirement and estate planning. d. savings and investment planning. e. employee benefit planning. ANS: C PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 19. Employee benefits may include a. retirement plans b. health insurance c. employee discounts d. tuition reimbursements e. all of the above ANS: E PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 20. Employee benefits may include a. health insurance b. disability insurance c. life insurance d. only a and b above e. all of the above ANS: E PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 21. Tax planning is most commonly done to a. reduce debt balances. b. change income patterns to avoid taxes. c. minimize taxes. d. pay extra taxes. e. learn the tax code. ANS: C PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 22. Investments are distinguished from savings on the basis of a. length of time held. b. initial dollar outlay. c. depreciation. d. voting rights. e. level of risk and expected return.ANS: E PTS: 1 DIF: Challenging OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 23. Estate planning involves a. considering how your wealth can be most effectively passed on to heirs. b. payment of all back taxes. c. dissolution of all privately held corporations. d. valuation and auctioning of your valuables. e. planning retirements. ANS: A PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 24. While you are still working, you should be managing your finances for retirement planning. Which of the following is not a goal of your retirement planning? a. maintaining your standard of living b. effectively passing wealth on to heirs c. a vacation home or boat d. travel ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 25. The three key groups in the economic environment are a. government, regulation, and business. b. government, consultants, and business. c. consumers, economists, and business. d. consumers, business, and managers. e. government, consumers, and business. ANS: E PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 26. Government places controls on the personal financial environment by use of a. taxation and fiscal policy. b. taxation and regulation. c. taxation and competition. d. regulation and competition. e. regulation and fiscal policy. ANS: B PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 27. Businesses provide a. stores. b. money payments. c. land and capital. d. labor. e. goods and services.ANS: E PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 28. The individual consumer is a. a member of the business group. b. the party around which the personal financial environment is centered. c. an important force in government. d. an advocacy group. e. relatively unimportant to business or government. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 29. The four stages of an economic cycle would not include a. depression. b. expansion. c. recession. d. recovery. e. stagnation. ANS: E PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 30. Inflation refers to a. rising prices. b. declining interest rates. c. the opposite of wealth. d. the opposite of stagflation. e. declining prices. ANS: A PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 31. As the rate of inflation increases, a. the cost of living goes down. b. interest rates decrease. c. pay checks decrease. d. retirement plans have more difficulty meeting their goals. e. purchasing power of a dollar increases. ANS: D PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 32. The amount of goods and services each dollar buys at a given point in time is: a. inflation b. consumer price index (CPI) c. purchasing power d. none of the above ANS: C PTS: 1 DIF: Easy OBJ: LO: 1-4NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 33. This is a measure of inflation based on changes in the cost of a market basket of consumer goods and services: a. inflation b. consumer price index (CPI) c. purchasing power d. none of the above ANS: B PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 34. Your income is directly related to your a. geographic location. b. age. c. education. d. all of these e. none of these ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 35. Typically people with the lowest incomes tend to be a. educated. b. very old. c. very young or very old. d. middle aged. e. childless. ANS: C PTS: 1 DIF: Easy OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 36. ____ tends to increase and then decrease over the life cycle. a. Debt b. Income c. Emergency funds d. a and b e. a, b, and c ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 37. Financial goals should be a. specific. b. attainable. c. prioritized. d. all of these e. none of these ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-2NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 38. Ideally, retirement planning should begin a. during the year before retirement. b. when the last child has left home. c. as soon as the mortgage is paid off. d. when you get married. e. none of these. ANS: E PTS: 1 DIF: Challenging OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 39. A personal computer could not be used to a. prepare detailed budgets. b. analyze investment possibilities. c. store and retrieve financial information efficiently. d. make financial decisions. e. keep insurance coverage inventories. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 40. ____ is the financial goal most people think is least important. a. Living well now b. Being financially independent c. Sending children to college d. Providing for retirement e. Leaving a large estate ANS: E PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 41. Professional financial planners a. help by establishing personal financial goals. b. are only for wealthy investors. c. are skilled at offering simple solutions to complex financial problems. d. make financial decisions for investors. e. are best utilized during retirement years. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 42. A ____ is a designation earned by financial planners after completing required courses of study. a. MBA b. LUTCF c. CFP d. E.A. e. CLU ANS: C PTS: 1 DIF: Easy OBJ: LO: 1-3NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 43. Low interest rates after 2008 and 2009 reflect the Federal Reserve’s desire to a. Stimulate economic growth d. a and b b. Reduce unemployment e. a, b, and c c. Reduce inflation ANS: D PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 44. What policies can the government utilize to help stabilize the economy? a. Price stabilization policy d. b and c b. Monetary policy e. a, b, and c c. Fiscal policy ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 45. A strong economy leads to a. lower inflation d. lower productivity b. lower interest rates e. higher unemployment c. higher employment ANS: C PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 46. An economy will usually go into a _________ after a peak. a. Convolution d. Recession b. Expansion e. Depression c. Contraction ANS: C PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 47. The financial crisis of 2008 and 2009 is best characterized as a ______________ a. Recession d. Business trough b. Depression e. Meltdown c. Downturn ANS: A PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Synthesis COMPLETION INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. 1. The best way to achieve your financial objectives is to [save every extra dollar you can | develop a sound financial plan]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-1NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 2. Financial planning [does | does not] guarantee a sound financial future. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 3. [Putting money into a retirement fund | Buying a car] would be an example of current consumption. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 4. [Vacations | Education] would be considered a necessity of life. ANS: c PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 5. The average [self employed | retired] household has higher income. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 6. The average [self employed | retired] household has higher levels of assets. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 7. The average American's [home equity | home mortgage] is higher. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 8. [More than | less than] the majority of Americans believe that money cannot buy happiness. ANS: aPTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 9. [Disney stock | Your car] would be considered a financial asset. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 10. [Stocks | Your house] would be considered to be real property. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 11. [Money | Inflation] is the common denominator for gauging all financial transactions. ANS: a PTS: 1 DIF: Challenging OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 12. [Inflation | Consumer Price Index] is the amount of goods and services each dollar buys at a given point in time. ANS: c PTS: 1 DIF: Challenging OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis 13. [Utility | Propensity to consume] refers to the satisfaction you receive from buying certain items. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 14. It is [fairly simple | impossible] to find a financial plan that will work for everyone. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension15. Most families find it [easy | difficult] to discuss money matters. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 16. "1 want to accumulate a comfortable retirement fund" [would | would not] be a specific financial goal. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-2 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application 17. Income tends to [increase | decrease] between the ages of 55 and 75. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 18. Your level of formal education is a [controllable | non controllable] factor that has a considerable effect on your income. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 19. For most people, debts [increase constantly | increase and then decrease] during their lifetimes. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 20. Most people graduate from college with [no | some] debts. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 21. The two principal constraints which government places upon us are regulations and [tariffs | taxes]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-4NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 22. The Consumer Price Index is a measure of [unemployment | inflation]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 23. Two key indicators of economic activity in the U.S. are production levels and [employment levels | cost of living]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 24. A decrease in the gross domestic product would indicate that our economy is [growing | stagnating]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 25. [Tax | Liability and insurance] planning is introduced early in the life cycle. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 26. During the expansion phase of the business cycle, the unemployment rate will [increase | decrease]. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 27. As the rate of inflation increases, the purchasing power of your dollars will [increase | decrease]. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 28. The primary determinant of your standard of living is your [wealth | propensity to consume].ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-1 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 29. Your [level of education | age] will usually have no effect on your earning capacity. ANS: c PTS: 1 DIF: Easy OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis 30. After reaching adulthood, your financial goals will [stabilize | continue to change]. ANS: b PTS: 1 DIF: Moderate OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension 31. For most people, employee benefits are of [little | major] importance. ANS: b PTS: 1 DIF: Easy OBJ: LO: 1-3 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 32. Typically, your salary will be [higher | lower] if you live in a large metropolitan area rather than a small town or rural area. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 33. [GDP | CPI] is the total of all goods and services produced by workers located within the country. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge 34. The average income of household heads increase until age [55 | 65] then income starts decreasing. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-5 NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge35. The Federal Reserve’s actions after the financial crisis of 2008 and 2009 resulted in [reduced interest rate | higher interest rates]. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 36. The government employs monetary and fiscal policy to help foster a [fast growing economy | no growth economy]. ANS: c PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 37. A stronger economy leads to [higher employment | lower employment]. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis 38. Following an economic trough, the economy will often enter a period of [expansion | contraction]. ANS: a PTS: 1 DIF: Easy OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge 39. The financial crisis of 2008 and 2009 is best characterized as a [recession | depression]. ANS: a PTS: 1 DIF: Moderate OBJ: LO: 1-4 NAT: BUSPROG: Reflective thinking KEY: Bloom's: ComprehensionChapter 2—Using Financial Statements and Budgets TRUE/FALSE 1. A balance sheet shows your financial condition as of the time the statement is prepared. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 2. One could use statements from their various financial institutions to help complete a balance sheet. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 3. The income statement includes information on your latest paycheck. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 4. The income and expenditures statement provides a measure of financial performance over a period of time. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 5. Financial planning is necessary only if you earn a lot of money. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 6. Assets listed on your balance sheet must have monetary value. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 7. A budget is a detailed statement of what income and expenses occurred over a past period. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 8. A budget is a detailed financial forecast. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension9. Financial assets are intangible assets acquired to achieve long-term personal financial goals. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 10. Assets purchased on credit should be included on the asset side of the balance sheet. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 11. Jewelry, furniture and computers are examples of personal property. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 12. A house and land are examples of financial property. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 13. Most types of personal property depreciate, or decline in value, shortly after being put into use. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 14. Investment assets include items such as boats or automobiles. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 15. All assets are recorded on the balance sheet at their original cost. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 16. The financial planning process is regulated by state governments when done by professionals. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 17. Money I loaned to a friend is a liability on my balance sheet. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application18. A charge made on your credit card becomes a liability as soon as the charge is incurred. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 19. You are more likely to achieve your goals if a definite goal date is set. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 20. Your auto loan payments would be listed as an expense on the income statement. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 21. Only the current month's payment on your mortgage loans would be listed on the balance sheet as a liability. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 22. Inability to reach short-term goals will significantly affect your ability to reach long-term goals. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 23. Your net worth and your equity in owned assets are the same basic concept. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 24. The balance sheet equation is assets plus liabilities equals net worth. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 25. A budget is an orderly estimate of income and expenditures. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 26. Mary and Tom purchased their home for $150,000, and it is now worth $175,000. Its asset value is $150,000. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-2NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 27. The equity in your home is the difference between the loan balance and the purchase price. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 28. The income and expenditures statement is a summary of actual income and expenditures over a specific point of time. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 29. Interest you earned on your savings account would be an entry on the balance sheet. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 30. If you obtain a loan to purchase a car in June, this loan amount would be included as income for June. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 31. If you listed your gross salary in the income portion of the budget, the expenditures section must include income taxes and social security. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 32. If you use net salary as income on your budget, the expenditures section must include income and social security taxes. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 33. An income statement deficit would increase net worth. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 34. When the income statement indicates a surplus, this may be used to increase net worth by increasing assets or decreasing liabilities. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis35. A cash deficit decreases net worth. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 36. Balance sheets and income statements are most useful if prepared at least annually. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 37. The savings ratio is useful in the evaluation of the balance sheet. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 38. A cash surplus will typically produce a positive savings ratio. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 39. A family could have a positive savings ratio at the same time its debt service ratio is increasing. ANS: T PTS: 1 DIF: Challenging OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 40. The liquidity ratio is an indicator of a family's ability to pay current debts if there is an interruption in income. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 41. The savings ratio indicates the percentage of after-tax income that is saved. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 42. The level of the debt service ratio would indicate your ability to meet loan payments out of current income. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 43. You have a balanced budget when total income for the year equals or exceeds total expenditures for the year.ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 44. You may be under-budgeting for food if you continually have monthly deficits in the food category. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 45. The best way to balance your budget is to increase borrowing. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Synthesis 46. A solvency ratio shows how much "cushion" you have as a protection against insolvency. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 47. Budgeting and record keeping are really the same activity. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 48. The best place to keep a budget is in a safe deposit box. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 49. Monthly statements and pay stubs can be shredded when year-end statements are received. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 50. When preparing a cash budget, estimating expenses using actual expenses from previous years and by tracking current expenses makes the task easier. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 51. A cash budget has value only if you use it, review it regularly, and keep careful records of income and expenses. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension52. One should quickly make important financial decisions soon after a financial shock, such as death or divorce. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 53. Using the future value calculations to estimate the funds needed to meet a goal takes compounding into account. ANS: T PTS: 1 DIF: Moderate OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 54. Using time value of money is important when planning for long-term goals. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 55. Using time value of money is most important when planning for short-term goals. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 56. Net income (after taxes) should be used when developing an income and expense statement. ANS: F PTS: 1 DIF: Moderate OBJ: LO: 2-5 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Analysis 57. In a budget, "fun money" is a budget category used for family members to spend as they like without having to account for how it is spent. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-5 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 58. Net worth peaks at about age 65 and then diminishes throughout retirement years. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 59. Only four categories of spending account for almost 90% of all consumer spending. ANS: F PTS: 1 DIF: Challenging OBJ: LO: 2-5 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 60. Net worth is greatest for those in their prime working years, about age 55. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge61. Net worth achieves is highest level beginning at age 65 and increases throughout retirement years. ANS: F PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 62. Personal financial software is widely available, much of which is free. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge 63. Most personal financial software is available at a reasonable cost. ANS: T PTS: 1 DIF: Easy OBJ: LO: 2-6 NAT: BUSPROG: Analytic skills KEY: Bloom's: Knowledge MULTIPLE CHOICE 1. The balance sheet describes a family's wealth a. at a certain point in tine. b. as an annual summary. c. as a time period less than one year. d. at a future time. e. none of these ANS: A PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 2. The three parts of your balance sheet are a. income, liabilities, balance. b. assets, expenditures, balance. c. assets, liabilities, balance. d. assets, liabilities, net worth. e. income, liabilities, net worth. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 3. A(n) ____ would not be listed as an asset on your balance sheet. a. mortgaged home b. savings account c. owned automobile d. checking account e. leased automobile ANS: E PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 4. When Phil lists his house on his balance sheet, he should record the a. actual purchase price. b. replacement value. c. insured value.d. sale price. e. fair market value. ANS: E PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 5. Your ____ is an example of a liquid asset. a. home b. car c. checking account d. charge account e. life insurance cash value ANS: C PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 6. Kathy purchased new furniture for $10,000. She put $1,000 down and financed $9,000. She will pay $350 per month until the loan is paid off. Which of the following are true? a. The furniture should be recorded as an asset of $10,000 on Kathy's balance sheet. b. The $9,000 is entered as a liability on Kathy's balance sheet. c. The furniture should be recorded as a $1,000 expenditure on Kathy's balance sheet. d. The $350 payments are expenditures on Kathy's income and expenditure statement. e. All are correct except c ANS: E PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Synthesis 7. Sam and his wife Ann purchased a home in Lubbock, Texas in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet? a. $200,000 asset and $55,000 liability b. $200,000 asset and $90,000 liability c. $175,000 asset and $55,000 liability d. $175,000 asset and $90,000 liability e. $100,000 asset and $55,000 liability ANS: C PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Evaluation 8. ____ is an example of an personal asset. a. Jewelry b. Recreational equipment c. Corporate bond d. Charge account balance e. Auto insurance premium ANS: A PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application9. A budget is a a. purchase plan. b. line of credit. c. financial statement. d. detailed financial forecast. e. set of personal financial objectives. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 10. The main purpose of a budget is to a. develop goals. b. develop a financial plan. c. give feedback to the plan. d. monitor and control financial outcomes. e. revise goals. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 11. Budgets are a. restrictive. b. complicated. c. are forward looking. d. permanent. e. unnecessary. ANS: C PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 12. ____ would not be listed as a liability on your balance sheet. a. Taxes owed b. Loan balances c. Bank credit card charges d. Savings accounts e. Rent due ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 13. ____ would not be a long-term financial goal. a. Purchasing a new car b. Providing adequate life insurance c. Reducing income taxes d. Paying your phone bill e. Planning for retirement ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-1 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application14. Net worth is measured by a. bank card balances. b. house mortgage balances. c. amount owed on an automobile loan. d. assets minus liabilities. e. insurance premium. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 15. Balance sheet liabilities should be recorded at their a. original outstanding balance. b. year-end outstanding balance. c. average outstanding balance. d. current outstanding balance. e. none of these. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 16. On the balance sheet, a mortgage loan is recorded as the a. interest only. b. sum of interest paid and the outstanding balance. c. sum of interest due and the outstanding balance. d. principal portion only. e. none of the above. ANS: D PTS: 1 DIF: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 17. Another term sometimes used instead of net worth is a. assets. b. net debts. c. long-term liabilities d. equity. e. liquid assets. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 18. The balance sheet equation is: a. Total Assets / Total Liabilities = Net Worth. b. Total Assets  Total Liabilities = Net Worth. c. Total Assets - Total Liabilities = Net Worth. d. Total Assets + Total Liabilities = Net Worth. e. Total Liabilities - Total Assets = Net Worth. ANS: C PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge19. Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities? a. $115,000 b. $140,000 c. $142,200 d. $165,000 e. $167,200 ANS: A PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Evaluation 20. Sonny and Cher have a net worth of $35,000 and total assets of $200,000. If their revolving credit and unpaid bills total $2,200, what are their long-term liabilities? a. $115,000 b. $140,000 c. $142,200 d. $162,800 e. $165,000 ANS: D PTS: 1 DIF: Challenging OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Evaluation 21. You are solvent if your a. total liabilities exceed total assets. b. total assets exceed total liabilities. c. total assets exceed net worth. d. total liabilities exceed net worth. e. none of these. ANS: B PTS: 1 DIF: Easy OBJ: LO: 2-2 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 22. The income and expenditures statement examines your financial a. level. b. performance. c. position. d. assets. e. objectives. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 23. The income statement is specific to a. one point in time. b. a specific period of time. c. last year. d. next year. e. none of these. ANS: B PTS: 1 DIF: Easy OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash FlowsKEY: Bloom's: Knowledge 24. The income statement includes a. income, liabilities, net worth. b. income, expenditures, surplus or deficit. c. expenditures, net worth, surplus or deficit. d. net worth, surplus, income or expenditures. e. savings, surplus, income or expenditures. ANS: B PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 25. On an income statement covering January 1 to June 30, ____ would not be included as income. a. wages and salaries received in that six months b. interest received on June 30 c. auto sold with payment received May 15 d. inheritance granted in April, to be paid in September e. income tax refund received April 14 ANS: D PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Knowledge 26. You are more likely to achieve your goals when a. your income is high. b. goal dates are inflexible. c. short- and long-term goals are established separately. d. goals are reassessed and revised periodically. e. one person controls all goals in the household. ANS: D PTS: 1 DIF: Easy OBJ: LO: 2-4 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Comprehension 27. You would not include ____ on an income and expenditures statement. a. the value of your stock portfolio b. taxes withheld c. utilities paid d. mortgage payments e. charitable payments ANS: A PTS: 1 DIF: Challenging OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 28. I should not record ____ on an income/expense statement covering January 1 to June 30. a. an $800 refrigerator bought on credit May 30 b. a paid March telephone bill c. health insurance premiums deducted from monthly pay checks d. checking account service charges e. groceries bought and paid for in June ANS: A PTS: 1 DIF: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash FlowsKEY: Bloom's: Knowledge 29. ____ would be an example of a periodic expense. a. Food b. Vacation c. Utilities d. Taxes e. none of these ANS: B PTS: 1 DIF: Easy OBJ: LO: 2-3 NAT: BUSPROG: Analytic skills STA: DISC: Financial Analysis and Cash Flows KEY: Bloom's: Application 30. The most common budgeting period is a a. week. b. month. c. quarter. d. semi-annually. e. bi-weekly. ANS: B PTS: 1 DIF: Easy OBJ: LO: 2-5 NAT: BUSPROG: Analytic skills