COA EXAM 1 QUESTIONS AND
ANSWERS (GRADED A)
Personal Financial Planning - ANSWER-process of managing finances to reach goals
and to provide satisfaction
Personal Finance - ANSWER-How people spend, save, invest and protect their financial
resources
Opportunity Costs - ANSWER--the cost of what is given up
-when you give something up to do something else
ex. Tiger Woods—went to Stanford, was a really good golfer in high
school/college→gave up college to go golf = good decision
ex. Bill Gates—went to Harvard, dropped out to invent things→lead to being the richest
man in the world
income risk - ANSWER-losing a job or other source of income is always a possibility
inflation risk - ANSWER-rising prices affect how far your $$ is stretched
interest rate risk - ANSWER-changing interest rates can have a negative effect on your
investments
liquidity - ANSWER--how readily something can be turned into cash
-some investments are harder than others to turn into cash
personal risk: - ANSWER-health, safety, and other risks are involved in money
decisions ex. Risk going without health insurance?
-risk tolerance - ANSWER-ability to accept risk
goal time horizon - ANSWER-span of time between now and goal achievement
Staying on Course - ANSWER-finish things you are already doing
ex. Keep paying off student loans
Expanding - ANSWER-adding new pieces
ex. Increasing $ to your retirement plant
Cutting Back - ANSWER-spending less, selling real estate or stock
-status risk: - ANSWER-clothing, neighborhoods, brands, and cell phones convey
images
, time risk - ANSWER-how long can you afford to put off saving for your child's college
fund, retirement, should I buy now, not do anything?
Risk Aversion - ANSWER--avoidance of risk
-there is a risk/return trade off which means that historically investments that produce
higher returns are generally more risky
Embarking on a new course - ANSWER-trying something for the first time
ex. Buying new stocks
cash management process - ANSWER--starts with awareness→what do I want to save
for
-analysis→what do I really want to do here, what is important
-evaluation
under 5% - ANSWER-unemployment rate now
The Time Value of Money - ANSWER-theory that the value derived from the use of
money over time increases its total by investment and reinvestment
time value of money - ANSWER--purchasing power is more powerful now than in the
future→if you have the money, buy it now not later
-ex. With divorce you should get your ½ now instead of waiting
net worth, once - ANSWER-= assets - liability ** (assets: what you own; liability: what
you owe)→do a net worth statement ____ a year
-to keep up to date on your financial situation: - ANSWER-you should completely
evaluate your financial plan at least _____ a year →tax time is a good time
-some people do it even quarterly→really into it/on top of it
-wealthy people monitor it more
Economics - ANSWER-Study of the economy, how wealth is created and distributed,
and the forces of supply and demand
Wealth - ANSWER--total value of all items owned
-stuff that you have right now
economy theory - ANSWER-assumes that individuals seek to max satisfaction and
avoid loss from the choices made
Financial Assets - ANSWER-intangibles or paper assets such as savings and securities
-the ones you can't see
-most are not obvious to the general public
-most wealth in this country is in retirement accounts
ANSWERS (GRADED A)
Personal Financial Planning - ANSWER-process of managing finances to reach goals
and to provide satisfaction
Personal Finance - ANSWER-How people spend, save, invest and protect their financial
resources
Opportunity Costs - ANSWER--the cost of what is given up
-when you give something up to do something else
ex. Tiger Woods—went to Stanford, was a really good golfer in high
school/college→gave up college to go golf = good decision
ex. Bill Gates—went to Harvard, dropped out to invent things→lead to being the richest
man in the world
income risk - ANSWER-losing a job or other source of income is always a possibility
inflation risk - ANSWER-rising prices affect how far your $$ is stretched
interest rate risk - ANSWER-changing interest rates can have a negative effect on your
investments
liquidity - ANSWER--how readily something can be turned into cash
-some investments are harder than others to turn into cash
personal risk: - ANSWER-health, safety, and other risks are involved in money
decisions ex. Risk going without health insurance?
-risk tolerance - ANSWER-ability to accept risk
goal time horizon - ANSWER-span of time between now and goal achievement
Staying on Course - ANSWER-finish things you are already doing
ex. Keep paying off student loans
Expanding - ANSWER-adding new pieces
ex. Increasing $ to your retirement plant
Cutting Back - ANSWER-spending less, selling real estate or stock
-status risk: - ANSWER-clothing, neighborhoods, brands, and cell phones convey
images
, time risk - ANSWER-how long can you afford to put off saving for your child's college
fund, retirement, should I buy now, not do anything?
Risk Aversion - ANSWER--avoidance of risk
-there is a risk/return trade off which means that historically investments that produce
higher returns are generally more risky
Embarking on a new course - ANSWER-trying something for the first time
ex. Buying new stocks
cash management process - ANSWER--starts with awareness→what do I want to save
for
-analysis→what do I really want to do here, what is important
-evaluation
under 5% - ANSWER-unemployment rate now
The Time Value of Money - ANSWER-theory that the value derived from the use of
money over time increases its total by investment and reinvestment
time value of money - ANSWER--purchasing power is more powerful now than in the
future→if you have the money, buy it now not later
-ex. With divorce you should get your ½ now instead of waiting
net worth, once - ANSWER-= assets - liability ** (assets: what you own; liability: what
you owe)→do a net worth statement ____ a year
-to keep up to date on your financial situation: - ANSWER-you should completely
evaluate your financial plan at least _____ a year →tax time is a good time
-some people do it even quarterly→really into it/on top of it
-wealthy people monitor it more
Economics - ANSWER-Study of the economy, how wealth is created and distributed,
and the forces of supply and demand
Wealth - ANSWER--total value of all items owned
-stuff that you have right now
economy theory - ANSWER-assumes that individuals seek to max satisfaction and
avoid loss from the choices made
Financial Assets - ANSWER-intangibles or paper assets such as savings and securities
-the ones you can't see
-most are not obvious to the general public
-most wealth in this country is in retirement accounts
