FIN 3330 Exam 1 Questions and Graded Answers.
Average propensity to consume (APC) - The percentage of each dollar of income, on
average, that is spent for current needs and wants, rather than saved. For example, Mary's APC is
95%; on average, she spends $0.95 and saves only a nickel of every dollar earned.
Business cycle/economic cycle - The irregularly occurring wavelike pattern of economic
activity, generally depicted as an undulating wave of expansions, peaks, contractions, and
troughs.
Employee benefit - any non-monetary benefit provided by employers to employees. This
form of compensation comes in a form other than wages, salary, commissions, or other cash
payments. Employee benefits may include health, disability, and life insurance; retirement,
pension, and profit-sharing plans; child and elder care; and/or educational assistance programs.
Financial planner - A financial professional who provides financial evaluations and advice
to individuals and families and who receives compensation in the form of commissions, fees, or
some combination thereof.
Inflation - A steady and sustained increase in general price levels across economic sectors.
This phenomenon is measured by the changing cost over time of goods and services that a
typical household might purchase.
Money - The medium of exchange used as a measure of the value of financial
transactions. It is used to purchase goods and services and the utility (or satisfaction) that these
goods and services provide.
Purchasing power - Used to characterize the value of a currency by describing the amount
of goods and services that can be purchased by a dollar at a given time. Inflation tends to
decrease this value; deflation, the opposite of inflation, tends to increase this value.
Standard of living - The material well-being and peace of mind that individuals and
groups desire and seek to attain, to maintain if attained, to preserve if threatened, and to regain if
lost.
,utility - The satisfaction received from buying and using certain types or quantities of
goods and services. Utility will result from consuming free as well as costly goods and services.
A basic economic goal is to achieve the maximum amount of utility per dollar of income spent.
Wealth - The total value of all items owned by an individual or family, including tangible
and financial assets. Therefore, wealth includes the value of home(s), personal belongings,
car(s), and other tangible assets, as well as intangible assets like cash, checking and savings
accounts, stocks, bonds, and other financial assets. Remember, it is possible that these assets may
also have outstanding debts associated with them.
The benefits of effective and efficient personal financial planning include: - Increased
flexibility and ability to accommodate significant life changes and events. Better informed and
deliberate decision making regarding current and deferred spending.
Which of the following activities also contributes to your financial success? - The
development of personal financial goals and target dates that are consistent with your values,
attitudes, and behaviors.
The development of an effective plan that is consistently applied until it is revised in accordance
with changes in your goals and life circumstances.
Self-awareness and knowledge of your own values, as well as attitudes and behaviors regarding
money, spending, and saving.
Knowledge of what other average people believe and how they behave, because they affect the
same financial markets and economic conditions that affect you.
The financial planning process - Step 1: Define your financial goals.
Step 2: Develop the financial plans and strategies needed to achieve those goals.
, Step 3: Implement your financial plans and strategies.
Step 4: Develop and implement budgets to control your progress toward your goals.
Step 5: Develop and use financial statements to evaluate the results of your plans and budgets.
Step 6: As your personal circumstances change, redefine your goals and revise your plans and
strategies.
Financial goals describe the desired outcomes of your financial planning activities. Most
financial advisors recommend developing goals with three broad categories of completion dates -
Long-term goals, which identify wants and needs that are expected to be realized 6-40
years from now.
Short-term goals, which address more immediate needs and wants, such as those occurring
within the next 12 months.
Intermediate-term goals, which identify wants and needs that occur between the other two
categories.
Asset acquisition planning - One of the earliest financial activities you undertake in life. It
involves the purchase ofthings we own , including tangible and financial assets, liquid assets,
investments, and personal and real property.
Liquid assets are X and are held either to consume and use or to generate a return or income as
an investment. An example of a liquid asset is X - Easily convertible into cash
Cash or money in a savings account
In general, the cost and value of your tangible, personal, and real assets tend to X with your age,
income, and wealth, all other things remaining constant. The value of your financial and liquid
Average propensity to consume (APC) - The percentage of each dollar of income, on
average, that is spent for current needs and wants, rather than saved. For example, Mary's APC is
95%; on average, she spends $0.95 and saves only a nickel of every dollar earned.
Business cycle/economic cycle - The irregularly occurring wavelike pattern of economic
activity, generally depicted as an undulating wave of expansions, peaks, contractions, and
troughs.
Employee benefit - any non-monetary benefit provided by employers to employees. This
form of compensation comes in a form other than wages, salary, commissions, or other cash
payments. Employee benefits may include health, disability, and life insurance; retirement,
pension, and profit-sharing plans; child and elder care; and/or educational assistance programs.
Financial planner - A financial professional who provides financial evaluations and advice
to individuals and families and who receives compensation in the form of commissions, fees, or
some combination thereof.
Inflation - A steady and sustained increase in general price levels across economic sectors.
This phenomenon is measured by the changing cost over time of goods and services that a
typical household might purchase.
Money - The medium of exchange used as a measure of the value of financial
transactions. It is used to purchase goods and services and the utility (or satisfaction) that these
goods and services provide.
Purchasing power - Used to characterize the value of a currency by describing the amount
of goods and services that can be purchased by a dollar at a given time. Inflation tends to
decrease this value; deflation, the opposite of inflation, tends to increase this value.
Standard of living - The material well-being and peace of mind that individuals and
groups desire and seek to attain, to maintain if attained, to preserve if threatened, and to regain if
lost.
,utility - The satisfaction received from buying and using certain types or quantities of
goods and services. Utility will result from consuming free as well as costly goods and services.
A basic economic goal is to achieve the maximum amount of utility per dollar of income spent.
Wealth - The total value of all items owned by an individual or family, including tangible
and financial assets. Therefore, wealth includes the value of home(s), personal belongings,
car(s), and other tangible assets, as well as intangible assets like cash, checking and savings
accounts, stocks, bonds, and other financial assets. Remember, it is possible that these assets may
also have outstanding debts associated with them.
The benefits of effective and efficient personal financial planning include: - Increased
flexibility and ability to accommodate significant life changes and events. Better informed and
deliberate decision making regarding current and deferred spending.
Which of the following activities also contributes to your financial success? - The
development of personal financial goals and target dates that are consistent with your values,
attitudes, and behaviors.
The development of an effective plan that is consistently applied until it is revised in accordance
with changes in your goals and life circumstances.
Self-awareness and knowledge of your own values, as well as attitudes and behaviors regarding
money, spending, and saving.
Knowledge of what other average people believe and how they behave, because they affect the
same financial markets and economic conditions that affect you.
The financial planning process - Step 1: Define your financial goals.
Step 2: Develop the financial plans and strategies needed to achieve those goals.
, Step 3: Implement your financial plans and strategies.
Step 4: Develop and implement budgets to control your progress toward your goals.
Step 5: Develop and use financial statements to evaluate the results of your plans and budgets.
Step 6: As your personal circumstances change, redefine your goals and revise your plans and
strategies.
Financial goals describe the desired outcomes of your financial planning activities. Most
financial advisors recommend developing goals with three broad categories of completion dates -
Long-term goals, which identify wants and needs that are expected to be realized 6-40
years from now.
Short-term goals, which address more immediate needs and wants, such as those occurring
within the next 12 months.
Intermediate-term goals, which identify wants and needs that occur between the other two
categories.
Asset acquisition planning - One of the earliest financial activities you undertake in life. It
involves the purchase ofthings we own , including tangible and financial assets, liquid assets,
investments, and personal and real property.
Liquid assets are X and are held either to consume and use or to generate a return or income as
an investment. An example of a liquid asset is X - Easily convertible into cash
Cash or money in a savings account
In general, the cost and value of your tangible, personal, and real assets tend to X with your age,
income, and wealth, all other things remaining constant. The value of your financial and liquid
