FNCE 2820 Midterm 1 Test With
Verified Answers
Financial Success - Answer Obtaining maximum benefits from limited financial
resources.
Example: Widow allocating money efficiently whereas a millionaire might misallocate
resources and achieve nothing.
Financial Independence - Answer the ability to afford a preferred lifestyle
Current/Future Consumption - Answer goods and services used in a current/ future time
period
Principle of Diminishing Marginal Satisaction - Answer A decreasing rate in satisfaction
in relation to increasing income.
Continuing Inflation - Answer The overall rise in price of goods and service. Roughly
2-4%.
Life- cycle planning - Answer a view of financial planning as a life long process
Major Financial Planning Areas - Answer Consumption and savings
income tax
debt
investment planning
insurance
retirement
estate
career
Marginal Analysis - Answer A type of cost-benefit decision that compares the extra
benefits to the extra costs of an action
Building- block approach to financial planning - Answer Sequential investing, starting
with a low-risk foundation and then moving to riskier investments
4. (Growth, Stocks, Gold & Raw Land)
3. (High- quality stocks & bonds) (Real Estate)
, 2. (Long- term savings deposits) (Government Securities) (Annuities)
1. (Career) (Adequate Insurance) (Housing) (Cash Reserves)
Compounding - Answer Finding future value
Calculating interest on both principal and previously earned interest.
Annuity - Answer A periodic series of equal payments.
Used to grow funds from an individual and then, upon annuitization, pay out a stream of
payments to the individual at a later point in time. Annuities are primarily used as a
means of securing a steady cash flow for an individual during their retirement years.
Future Value - Answer A sum of money received or paid in the future.
Compound Interest - Answer A future value that includes interest on interest.
Simple Interest - Answer An assumption that interest earned in a period is withdrawn in
that period.
Interest earned only on the original principal amount invested
Importance of Additional Yield - Answer Higher percentage yield usually comes with
higher risk
Percent Yield - Answer (Actual Yield/Theoretical Yield) x 100%
The Rule of 72 - Answer (Doubling Time) DT= 72 / Rate of Growth = number of years to
double an investment's value
Goal of Annuity - Answer to proide a stable, long- term source of income for the annuity
holder
Ordinary Annuity - Answer an annuity with end-of-period payments
Annuity Due - Answer An annuity with beginning-of-period payments
Discounting - Answer Finding present values
the process of reducing future values to present values
(Lottery)
Personal Balance Sheet - Answer Snapshot of a person's wealth at certain point in time.
Includes assets, liabilities, and net worth.
a financial statement that lists items of value owned, debts owed, and a person's net
worth
tells you what your financial position is at a point in time
Verified Answers
Financial Success - Answer Obtaining maximum benefits from limited financial
resources.
Example: Widow allocating money efficiently whereas a millionaire might misallocate
resources and achieve nothing.
Financial Independence - Answer the ability to afford a preferred lifestyle
Current/Future Consumption - Answer goods and services used in a current/ future time
period
Principle of Diminishing Marginal Satisaction - Answer A decreasing rate in satisfaction
in relation to increasing income.
Continuing Inflation - Answer The overall rise in price of goods and service. Roughly
2-4%.
Life- cycle planning - Answer a view of financial planning as a life long process
Major Financial Planning Areas - Answer Consumption and savings
income tax
debt
investment planning
insurance
retirement
estate
career
Marginal Analysis - Answer A type of cost-benefit decision that compares the extra
benefits to the extra costs of an action
Building- block approach to financial planning - Answer Sequential investing, starting
with a low-risk foundation and then moving to riskier investments
4. (Growth, Stocks, Gold & Raw Land)
3. (High- quality stocks & bonds) (Real Estate)
, 2. (Long- term savings deposits) (Government Securities) (Annuities)
1. (Career) (Adequate Insurance) (Housing) (Cash Reserves)
Compounding - Answer Finding future value
Calculating interest on both principal and previously earned interest.
Annuity - Answer A periodic series of equal payments.
Used to grow funds from an individual and then, upon annuitization, pay out a stream of
payments to the individual at a later point in time. Annuities are primarily used as a
means of securing a steady cash flow for an individual during their retirement years.
Future Value - Answer A sum of money received or paid in the future.
Compound Interest - Answer A future value that includes interest on interest.
Simple Interest - Answer An assumption that interest earned in a period is withdrawn in
that period.
Interest earned only on the original principal amount invested
Importance of Additional Yield - Answer Higher percentage yield usually comes with
higher risk
Percent Yield - Answer (Actual Yield/Theoretical Yield) x 100%
The Rule of 72 - Answer (Doubling Time) DT= 72 / Rate of Growth = number of years to
double an investment's value
Goal of Annuity - Answer to proide a stable, long- term source of income for the annuity
holder
Ordinary Annuity - Answer an annuity with end-of-period payments
Annuity Due - Answer An annuity with beginning-of-period payments
Discounting - Answer Finding present values
the process of reducing future values to present values
(Lottery)
Personal Balance Sheet - Answer Snapshot of a person's wealth at certain point in time.
Includes assets, liabilities, and net worth.
a financial statement that lists items of value owned, debts owed, and a person's net
worth
tells you what your financial position is at a point in time
