Ch01
Student: ___________________________________________________________________________
1. Financial planning does not have specific techniques that will be effective for every individual and
household.
True False
2. Analyzing your current financial position is a part of the first stage of the financial planning process.
True False
3. Developing financial goals is the first step in the financial planning process.
True False
4. Risks associated with most financial decisions are fairly easy to measure.
True False
5. The financial planning process is complete once you implement your financial plan.
True False
6. Intermediate goals are usually achieved within the next year or so.
True False
7. Planning to buy a house is an example of a durable product goal.
True False
8. Household size is a major influence on personal financial planning decisions.
True False
9. Simple interest is the interest computed based on the principle, excluding previously earned interest.
True False
10. Increased demand for a product or service will usually result in lower prices for the item.
True False
11. Inflation reduces the buying power of money.
True False
12. Lenders benefit less than borrowers in times of high inflation.
True False
13. When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.
True False
14. A decrease in the demand for a product or service may result in a decrease in wages for people producing
that item.
True False
15. Higher inflation usually results in lower interest rates.
True False
16. Opportunity costs refer to time, money, and other resources that are given up when a decision is
made.
True False
17. Time value of money refers to changes in consumer spending when inflation occurs.
True False
,18. Gross domestic product (GDP) can be described as the difference between a country's exports and its
imports.
True False
19. Present value is also referred to as compounding.
True False
20. Changes in interest rates don't affect your financial planning.
True False
21. Liquidity is the ability to convert financial resources into usable cash with ease.
True False
22. A financial plan is also known and referred to as a budget.
True False
23. A higher opportunity cost implies a lower current value.
True False
24. Personal financial planning has the main goal of:
A. Savings and investing for future needs.
B. Reducing a person's tax liability.
C. Managing money to achieve personal economic satisfaction.
D. Spending to achieve financial objectives.
E. Savings, spending, and borrowing based on current needs.
25. The first step of the financial planning process is to
A. develop financial goals.
B. implement the financial plan.
C. determine your current personal and financial situation.
D. evaluate and revise your actions.
E. create a financial plan of action.
26. Opportunity cost refers to:
A. money needed for major consumer purchases.
B. the trade-off of a decision.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.
27. Increased consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. lower interest rates.
E. higher employment levels.
28. The uncertainty associated with decision making is referred to as:
A. opportunity cost.
B. selection of alternatives.
C. financial goals.
D. personal values.
E. risk.
,29. Some savings and investment choices have the potential for higher earnings. However, these may also be
difficult to convert to cash when you need the funds. This problem refers to:
A. Inflation risk
B. Interest rate risk
C. Income risk
D. Personal risk
E. Liquidity risk
30. The financial planning process concludes with efforts to:
A. develop financial goals.
B. create a financial plan of action.
C. analyze your current personal and financial situation.
D. implement the financial plan.
E. revaluate and revise your actions.
31. Changes in income, values, and family situation make it necessary to:
A. develop financial goals
B. implement the financial plan.
C. evaluate and revise your actions.
D. analyze your current personal and financial situation.
E. create a financial plan of action.
32. As Jeanne Taillefer plans to set aside funds for her young children's college education, she is setting a(n)
____________ goal.
A. intermediate
B. short term
C. long-term
D. intangible
E. durable
33. ____________ goals relate to personal relationships, health, and education.
A. Short-term
B. Intangible-purchase
C. Consumable-product
D. Durable-product
E. Intermediate
34. Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks
A. measurable terms.
B. a realistic perspective.
C. specific actions.
D. a tangible end.
E. a time frame.
35. Which of the following goals would be the easiest to implement and measure its accomplishment?
A. "Reduce our debt payments."
B. "Save funds for an annual vacation."
C. "Save $100 a month to create a $4,000 emergency fund."
D. "Clear credit card debt
E. "Invest $2,000 a year for retirement."
, 36. The present value of a future amount will decrease if ________________.
I. the discount rate increases
II. the amount occurs closer in time
III. the compounding frequency increases
IV. inflation increases
A. I and II only
B. I and III only
C. II and III only
D. III and IV only
E. I, III and IV only
37. Higher prices are likely to result from:
A. increased spending by consumers.
B. increased production by business.
C. lower interest rates.
D. lower demand by consumers
E. an increase in the supply of a product.
38. Who is most likely to benefit by inflation?
A. retired people
B. lenders
C. borrowers
D. low-income consumers
E. government
39. Higher consumer prices are likely to be accompanied by:
A. lower union wages.
B. lower interest rates.
C. lower production costs.
D. higher interest rates.
E. higher exports.
40. Increased consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. higher employment levels.
E. lower interest rates.
41. Higher interest rates can be caused by:
A. a lower money supply.
B. an increase in the money supply.
C. a decrease in consumer borrowing.
D. lower government spending.
E. increased saving and investing by consumers.
42. The changing cost of money is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. personal
Student: ___________________________________________________________________________
1. Financial planning does not have specific techniques that will be effective for every individual and
household.
True False
2. Analyzing your current financial position is a part of the first stage of the financial planning process.
True False
3. Developing financial goals is the first step in the financial planning process.
True False
4. Risks associated with most financial decisions are fairly easy to measure.
True False
5. The financial planning process is complete once you implement your financial plan.
True False
6. Intermediate goals are usually achieved within the next year or so.
True False
7. Planning to buy a house is an example of a durable product goal.
True False
8. Household size is a major influence on personal financial planning decisions.
True False
9. Simple interest is the interest computed based on the principle, excluding previously earned interest.
True False
10. Increased demand for a product or service will usually result in lower prices for the item.
True False
11. Inflation reduces the buying power of money.
True False
12. Lenders benefit less than borrowers in times of high inflation.
True False
13. When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.
True False
14. A decrease in the demand for a product or service may result in a decrease in wages for people producing
that item.
True False
15. Higher inflation usually results in lower interest rates.
True False
16. Opportunity costs refer to time, money, and other resources that are given up when a decision is
made.
True False
17. Time value of money refers to changes in consumer spending when inflation occurs.
True False
,18. Gross domestic product (GDP) can be described as the difference between a country's exports and its
imports.
True False
19. Present value is also referred to as compounding.
True False
20. Changes in interest rates don't affect your financial planning.
True False
21. Liquidity is the ability to convert financial resources into usable cash with ease.
True False
22. A financial plan is also known and referred to as a budget.
True False
23. A higher opportunity cost implies a lower current value.
True False
24. Personal financial planning has the main goal of:
A. Savings and investing for future needs.
B. Reducing a person's tax liability.
C. Managing money to achieve personal economic satisfaction.
D. Spending to achieve financial objectives.
E. Savings, spending, and borrowing based on current needs.
25. The first step of the financial planning process is to
A. develop financial goals.
B. implement the financial plan.
C. determine your current personal and financial situation.
D. evaluate and revise your actions.
E. create a financial plan of action.
26. Opportunity cost refers to:
A. money needed for major consumer purchases.
B. the trade-off of a decision.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.
27. Increased consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. lower interest rates.
E. higher employment levels.
28. The uncertainty associated with decision making is referred to as:
A. opportunity cost.
B. selection of alternatives.
C. financial goals.
D. personal values.
E. risk.
,29. Some savings and investment choices have the potential for higher earnings. However, these may also be
difficult to convert to cash when you need the funds. This problem refers to:
A. Inflation risk
B. Interest rate risk
C. Income risk
D. Personal risk
E. Liquidity risk
30. The financial planning process concludes with efforts to:
A. develop financial goals.
B. create a financial plan of action.
C. analyze your current personal and financial situation.
D. implement the financial plan.
E. revaluate and revise your actions.
31. Changes in income, values, and family situation make it necessary to:
A. develop financial goals
B. implement the financial plan.
C. evaluate and revise your actions.
D. analyze your current personal and financial situation.
E. create a financial plan of action.
32. As Jeanne Taillefer plans to set aside funds for her young children's college education, she is setting a(n)
____________ goal.
A. intermediate
B. short term
C. long-term
D. intangible
E. durable
33. ____________ goals relate to personal relationships, health, and education.
A. Short-term
B. Intangible-purchase
C. Consumable-product
D. Durable-product
E. Intermediate
34. Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks
A. measurable terms.
B. a realistic perspective.
C. specific actions.
D. a tangible end.
E. a time frame.
35. Which of the following goals would be the easiest to implement and measure its accomplishment?
A. "Reduce our debt payments."
B. "Save funds for an annual vacation."
C. "Save $100 a month to create a $4,000 emergency fund."
D. "Clear credit card debt
E. "Invest $2,000 a year for retirement."
, 36. The present value of a future amount will decrease if ________________.
I. the discount rate increases
II. the amount occurs closer in time
III. the compounding frequency increases
IV. inflation increases
A. I and II only
B. I and III only
C. II and III only
D. III and IV only
E. I, III and IV only
37. Higher prices are likely to result from:
A. increased spending by consumers.
B. increased production by business.
C. lower interest rates.
D. lower demand by consumers
E. an increase in the supply of a product.
38. Who is most likely to benefit by inflation?
A. retired people
B. lenders
C. borrowers
D. low-income consumers
E. government
39. Higher consumer prices are likely to be accompanied by:
A. lower union wages.
B. lower interest rates.
C. lower production costs.
D. higher interest rates.
E. higher exports.
40. Increased consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. higher employment levels.
E. lower interest rates.
41. Higher interest rates can be caused by:
A. a lower money supply.
B. an increase in the money supply.
C. a decrease in consumer borrowing.
D. lower government spending.
E. increased saving and investing by consumers.
42. The changing cost of money is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. personal
