Personal Finance – Midterm Exam with
Answers
Most Americans will never be able to understand and develop a personal financial plan -
✔✔False
An example of an opportunity cost is the wages that you could have earned but did not because
you were in class - ✔✔True
The simple objective of financial planning is to make the best use of your resources to achieve
your financial goals. - ✔✔True
The value of what you own minus the value of what you owe is called your net worth. - ✔✔True
Your cash outflows are the same as your liabilities such as the amount you owe on your car or
home. - ✔✔False
The primary goal of financial planning is to - ✔✔maximize wealth
The personal cash flow statement measures - ✔✔Cash inflows only
Jim has $1,000 income from his job and $200 stock dividend income this month. This monthJim
has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What ishis
cash inflow this month? - ✔✔$1200
Jim has $1,000 of salary and $100 of dividend income this month. This month he also hasrent
and utilities of $300 and he spent $200 on groceries and $100 on clothing. What is Jim's netcash
flow this month? - ✔✔$500
,A personal financial plan specifies financial goals and describes - ✔✔spending, financing, and
investment plans.
Opportunity cost refers to - ✔✔what you give up or forego as a result of making a decision.
Which of the following is an example of an opportunity cost? - ✔✔Taking a class instead of
working at your part-time job
Which of the following is an example of an opportunity cost? - ✔✔Giving up going to a movie in
order to study for your finance exam
Josh has decided to take a course at the local community college that could help him get
apromotion at work. The course begins at 5 p.m. and goes until 9 p.m. on Monday nights.
Joshnormally works until 5 p.m. each day, but because of the drive time to the community
college, hewill need to leave work at 3 p.m. on class days. Josh currently earns $18.50 per hour.
Hisemployer contributes 10% of Josh's gross earnings to a 401(k) retirement plan. If the class
meets16 times, what is Josh's total opportunity cost for the class? - ✔✔$651.20
Which of these statements is true with regards to the 2008-2009 financial crisis? - ✔✔The
values of many homes were cut in half or more.
The time value of money concept can help you determine how much money you need to
saveover a period of time to achieve a specific savings goal. - ✔✔True
Time value of money calculations, such as present and future value amounts, can be applied
tomany day-to-day decisions. - ✔✔True
An annuity is a stream of equal payments that are received or paid at equal intervals in time. -
✔✔True
,Money received today is worth more than the same amount of money received in the
future.This is true because - ✔✔money received today can grow at a compounded rate.
The time value of money implies that a dollar received today is worth ________ a
dollarreceived tomorrow. - ✔✔More than
An ordinary annuity can be defined as - ✔✔a series of equal payments received or paid at equal
intervals of time at the end of each period.
The concept of time value of money is important to financial decision making because - ✔✔All
of these
Byron is investigating a mutual fund that claims that $1,000 today will be worth $5,000 infive
years. What is he solving for? - ✔✔Interest Rate
If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years? -
✔✔$31,128
How much must you invest today at 8% interest in order to see your investment grow
to$15,000 in 10 years? - ✔✔$6945
If Joe has $5,600 today and invests it at a 10% interest rate, how much will he have in 12years?
(Note—Solve as a future value problem.) - ✔✔$17,572.80
If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he needto
invest today? (Note—Solve as a present value problem.) - ✔✔$17,025
At what annual rate would $500 grow to $1,948 in 12 years? (Note—Solve as a present
valueproblem.) - ✔✔12.0%
, To save for her newborn son's college education, Kelli Peterson will invest $1,500 at the endof
each year for the next 18 years. The interest rate she expects to earn on her investment is
9%.How much money will she have saved by the time her son turns 18? - ✔✔$61,952
Judy would like to have $200,000 saved in her retirement account in 20 years. Assuming
aninterest rate of 10%, how much should she contribute each year? - ✔✔$3,491.92
Your gross wages are subject to FICA (Federal Insurance Contributions Act) taxes that fundthe
Social Security system and Medicare. - ✔✔True
Employers have an option of whether or not to match an employee's Social Security
andMedicare taxes. - ✔✔False
In 2015, self-employed individuals paid FICA taxes at a rate of - ✔✔15.3 percent
A long-term capital gain results from profit on the sale of capital assets that were held 12
months or more. - ✔✔True
Which of the following is not subject to immediate taxation? - ✔✔Contributions to your
employer-sponsored retirement account
Bank fees for use of an automated teller machine (ATM) do not need to be considered
whenchoosing a bank since fees are set by the federal government and are the same for all
banks. - ✔✔False
Nondepository institutions are financial institutions that provide various financial services,
buttheir deposits are not federally insured. - ✔✔True
A mutual fund is a means by which investors with only a small amount of money can investin a
portfolio of securities. - ✔✔True
Answers
Most Americans will never be able to understand and develop a personal financial plan -
✔✔False
An example of an opportunity cost is the wages that you could have earned but did not because
you were in class - ✔✔True
The simple objective of financial planning is to make the best use of your resources to achieve
your financial goals. - ✔✔True
The value of what you own minus the value of what you owe is called your net worth. - ✔✔True
Your cash outflows are the same as your liabilities such as the amount you owe on your car or
home. - ✔✔False
The primary goal of financial planning is to - ✔✔maximize wealth
The personal cash flow statement measures - ✔✔Cash inflows only
Jim has $1,000 income from his job and $200 stock dividend income this month. This monthJim
has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What ishis
cash inflow this month? - ✔✔$1200
Jim has $1,000 of salary and $100 of dividend income this month. This month he also hasrent
and utilities of $300 and he spent $200 on groceries and $100 on clothing. What is Jim's netcash
flow this month? - ✔✔$500
,A personal financial plan specifies financial goals and describes - ✔✔spending, financing, and
investment plans.
Opportunity cost refers to - ✔✔what you give up or forego as a result of making a decision.
Which of the following is an example of an opportunity cost? - ✔✔Taking a class instead of
working at your part-time job
Which of the following is an example of an opportunity cost? - ✔✔Giving up going to a movie in
order to study for your finance exam
Josh has decided to take a course at the local community college that could help him get
apromotion at work. The course begins at 5 p.m. and goes until 9 p.m. on Monday nights.
Joshnormally works until 5 p.m. each day, but because of the drive time to the community
college, hewill need to leave work at 3 p.m. on class days. Josh currently earns $18.50 per hour.
Hisemployer contributes 10% of Josh's gross earnings to a 401(k) retirement plan. If the class
meets16 times, what is Josh's total opportunity cost for the class? - ✔✔$651.20
Which of these statements is true with regards to the 2008-2009 financial crisis? - ✔✔The
values of many homes were cut in half or more.
The time value of money concept can help you determine how much money you need to
saveover a period of time to achieve a specific savings goal. - ✔✔True
Time value of money calculations, such as present and future value amounts, can be applied
tomany day-to-day decisions. - ✔✔True
An annuity is a stream of equal payments that are received or paid at equal intervals in time. -
✔✔True
,Money received today is worth more than the same amount of money received in the
future.This is true because - ✔✔money received today can grow at a compounded rate.
The time value of money implies that a dollar received today is worth ________ a
dollarreceived tomorrow. - ✔✔More than
An ordinary annuity can be defined as - ✔✔a series of equal payments received or paid at equal
intervals of time at the end of each period.
The concept of time value of money is important to financial decision making because - ✔✔All
of these
Byron is investigating a mutual fund that claims that $1,000 today will be worth $5,000 infive
years. What is he solving for? - ✔✔Interest Rate
If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years? -
✔✔$31,128
How much must you invest today at 8% interest in order to see your investment grow
to$15,000 in 10 years? - ✔✔$6945
If Joe has $5,600 today and invests it at a 10% interest rate, how much will he have in 12years?
(Note—Solve as a future value problem.) - ✔✔$17,572.80
If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he needto
invest today? (Note—Solve as a present value problem.) - ✔✔$17,025
At what annual rate would $500 grow to $1,948 in 12 years? (Note—Solve as a present
valueproblem.) - ✔✔12.0%
, To save for her newborn son's college education, Kelli Peterson will invest $1,500 at the endof
each year for the next 18 years. The interest rate she expects to earn on her investment is
9%.How much money will she have saved by the time her son turns 18? - ✔✔$61,952
Judy would like to have $200,000 saved in her retirement account in 20 years. Assuming
aninterest rate of 10%, how much should she contribute each year? - ✔✔$3,491.92
Your gross wages are subject to FICA (Federal Insurance Contributions Act) taxes that fundthe
Social Security system and Medicare. - ✔✔True
Employers have an option of whether or not to match an employee's Social Security
andMedicare taxes. - ✔✔False
In 2015, self-employed individuals paid FICA taxes at a rate of - ✔✔15.3 percent
A long-term capital gain results from profit on the sale of capital assets that were held 12
months or more. - ✔✔True
Which of the following is not subject to immediate taxation? - ✔✔Contributions to your
employer-sponsored retirement account
Bank fees for use of an automated teller machine (ATM) do not need to be considered
whenchoosing a bank since fees are set by the federal government and are the same for all
banks. - ✔✔False
Nondepository institutions are financial institutions that provide various financial services,
buttheir deposits are not federally insured. - ✔✔True
A mutual fund is a means by which investors with only a small amount of money can investin a
portfolio of securities. - ✔✔True
