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Exam 1: Personal Finance Basics and the Time Value of Money

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Question 31

True/False

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Personal opportunity costs refer to time,effort,and health that are given up when a decision is made.

A) True
B) False

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Question 32

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Which of the following would increase the risk of a loan to the lender?

A) Inflation rate greater than loan rate
B) A short time to maturity
C) Consumer Price Index
D) Rule of 72
E) Inflation rate lower than loan rate

F) All of the above
G) B) and D)

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Question 33

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People are commonly overwhelmed by the many influences on personal financial decisions.What are the factors affecting financial planning?

A question associated with the saving component of financial planning is:

Lynn Roy knows that if she continues to work full time,it will be difficult for her to get the time off she needs to be able to travel around the world.However,if she continues to work full time she will more easily earn the money she needs to take her trip and still have money left for her living expenses after she gets back from her trip.Which step in the financial planning process does this scenario demonstrate?

Lynn Roy wants to travel after she retires as well as pay off the balance of the loan she has on the home she owns.Which step in the financial planning process does this situation demonstrate?

Mary Smith is considering investing in 30 year Corporate Bonds issued by Duke Energy Company.She knows that she will earn an interest rate of 8% by purchasing these bonds.However,she is concerned because she might need to take her money out of this investment in a year,and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for.What type of risk is Mary concerned about?

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:

The uncertainty associated with evaluating your alternatives is referred to as:

Increased demand for a product or service will usually result in lower prices for the item.

Financial institutions include the following:

If you are concerned about year-end tax payments and need an action plan,you may take the following action(s) :

When an individual makes a purchase without considering the financial consequences of that purchase,he/she ignores the ______________ aspect of financial planning.

Analyzing your current financial position is a part of which step of the financial planning process:

Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate.

Gross Domestic Product (GDP)measures the total value of goods and services produced within a country's borders,excluding items produced with foreign resources.

John Dean has just moved into a new house and needs a lawn mower since he has always lived in apartments and now he has a lawn to mow.What type of goal would this be for John?

Time value of money refers to changes in consumer spending when inflation occurs.

Inflation reduces the buying power of the dollar.

John Gleason is interested in purchasing a 46" rear projection TV for his living room.He knows that right now the TV will cost approximately $1500.However,John is a little concerned about his job.John is a pilot for Delta Airlines and he thinks it is possible that he could be laid off in the near future.What type of risk is John worried about?