FP 1 Exam Questions and Complete
Answers
Reasons for money problems - Answer: Two main factors
1. Poor planning and weak money management habits in areas such as spending and the use of
credit.
2. The other factor is extensive advertising, selling efforts, and product availability that encourage
overbuying.
Must have clear financial goals.
Types of financial goals - Answer: Short-term: achieved within the next year or so, such as saving for
a vacation or paying off small debts.
Intermediate: have a time frame of two to five years
Long-term: involve financial plans that are more than five years off, such as retirement, money for
children's college education, or the purchase of a vacation home
Consumable-product goals: period basis and involve food, clothing, entertainment
Durable-product goals: appliances, cars, ect
Intangible-purchase goals: personal relationships, health, education
Goal-setting - Answer: Your financial goals are the basis for planning, implementing, and measuring
the progress of your spending, saving, and investing activities.
SMART approach
, S-specific
M-measurable
A-action-oriented
R-realistic
T-time based
1. Realistic goals
2. State goals in measurable terms
3. Determine time frame
4. Actions to be taken
Opportunity cost - Answer: What a person gives up by making a choice.
Trade-off
Personal opportunity cost involves time that when used for one activity cannot be used for other
activities. Time for Studying, working, shopping, will not be available for other uses.
Poor eating habits, lack of sleep, avoiding exercise can result in illness, time away from school or
work, increased health care costs, and reduced financial security. Like financial resources, your
personal resources (time, energy, health, abilities, knowledge) require planning and wise
management.
Time value of money - Answer: Increase in an amount of money as a result of interest earned
Simple interest - Answer: Amount of savings (principal)
Annual interest rate
Length of time money is on deposit
Principal x Rate x Time = Interest
Five methods for calculating time value of money - Answer: 1. Formula calculation. With this
conventional method, math notations are used for computing future value and present value.
Answers
Reasons for money problems - Answer: Two main factors
1. Poor planning and weak money management habits in areas such as spending and the use of
credit.
2. The other factor is extensive advertising, selling efforts, and product availability that encourage
overbuying.
Must have clear financial goals.
Types of financial goals - Answer: Short-term: achieved within the next year or so, such as saving for
a vacation or paying off small debts.
Intermediate: have a time frame of two to five years
Long-term: involve financial plans that are more than five years off, such as retirement, money for
children's college education, or the purchase of a vacation home
Consumable-product goals: period basis and involve food, clothing, entertainment
Durable-product goals: appliances, cars, ect
Intangible-purchase goals: personal relationships, health, education
Goal-setting - Answer: Your financial goals are the basis for planning, implementing, and measuring
the progress of your spending, saving, and investing activities.
SMART approach
, S-specific
M-measurable
A-action-oriented
R-realistic
T-time based
1. Realistic goals
2. State goals in measurable terms
3. Determine time frame
4. Actions to be taken
Opportunity cost - Answer: What a person gives up by making a choice.
Trade-off
Personal opportunity cost involves time that when used for one activity cannot be used for other
activities. Time for Studying, working, shopping, will not be available for other uses.
Poor eating habits, lack of sleep, avoiding exercise can result in illness, time away from school or
work, increased health care costs, and reduced financial security. Like financial resources, your
personal resources (time, energy, health, abilities, knowledge) require planning and wise
management.
Time value of money - Answer: Increase in an amount of money as a result of interest earned
Simple interest - Answer: Amount of savings (principal)
Annual interest rate
Length of time money is on deposit
Principal x Rate x Time = Interest
Five methods for calculating time value of money - Answer: 1. Formula calculation. With this
conventional method, math notations are used for computing future value and present value.
