Chapter Bonus D – Managing Personal Finances
BonusD-41
Once you have set up a budget and handled your ordinary expenses, the first thing to do
with any extra money you have is to:
A. start a savings plan.
B. pay off your debts.
C. start your own business.
D. spend it on the things you would like but that aren’t included in your budget.
156. Which of the following accounting statements would assist an individual in taking
inventory of personal assets and liabilities?
A. income statement
B. balance sheet
C. budget
D. statement of cash flows
Feedback: The balance sheet will reflect the accounting equation: assets = liabilities plus
owners’ equity (or net worth).
157.
Chapter Bonus D – Managing Personal Finances
Young married couples that find themselves running out of money at the end of the
month, might be well advised to:
A. keep track of all of their expenses.
B. keep track of cash spent on major purchases.
C. prepare a balance sheet.
D. apply for additional credit cards.
Feedback: The only way to get control of your cash outflow is to keep track of every cent you
spend. This discipline will highlight the various categories of your spending so that you can
see where you are spending too much, and will help you control the vague “miscellaneous”
expenditures.
158. The best way to save money is to:
A. pay yourself first by taking out money for savings from each paycheck before
deciding what to do with the remaining money.
B. start your own business designed to create business tax deductions.
C. prepare a balance sheet.
D. pay yourself last.
Feedback: The best way to save money is to pay yourself first. When you receive your
paycheck, take out money for savings, and then plan what to do with the rest.
BonusD-43
159. Bob’s credit card charges him 14% interest on his unpaid balance. His bank is offering
him 5% interest on a savings account. The first thing Bob should do with any extra
money he may have is to:
A. invest in the stock market.
B. open a savings account.
C. pre-pay for necessities, like rent and utilities.
D. pay off the credit card balance.
Feedback: The risk-free return generated by paying off the credit card balance is greater than
the other options. While the stock market has the potential of earning more than the credit
card debt, it is important to adjust the potential earnings for the risk inherent in stock market
investing.
160.
Chapter Bonus D – Managing Personal Finances
Luke and Beth were recently married soon after graduating from college. Although they
incurred a significant amount of debt to finance their education, both recently got good
paying jobs and appear to have promising careers. Given their situation, down the road
Luke and Beth:
A. are almost certain to be able to retire comfortably when the time comes, given the high
level of income they are likely to earn.
B. could be able to retire comfortably, but doing so will take planning and discipline on
their part.
C. have little chance of enjoying a comfortable retirement because the college debts will
take years to repay and become a major burden.
D. will probably find that Social Security will provide an adequate retirement, but that
they may need to supplement this with a modest pension if they really want to enjoy the
fine life in their golden years.
Feedback: It’s true that the first step in financial planning involves making money, and Luke
and Beth appear in good shape to earn attractive incomes. However, making money is only
the first step; it is also necessary to spend wisely and to save. This takes planning and
discipline. As the text points out, many people use their education to have successful careers
and improve their earning potential, yet they have little to show for it when it comes time to
retire. Less than 10 % of the U.S. population has set aside enough money to live comfortably
by the time they retire.
BonusD-46
163. Lucy has prepared her personal balance sheet and found that her total assets are
$54,000 and her total liabilities (largely college loans) are $48,000. This indicates that
Lucy’s:
A. net income is only $6,000.
B. net worth is $6,000.
C. cash flow will not be sufficient to repay her college loans.
D. balance sheet is out of balance.
Feedback: A balance sheet is based on the fundamental accounting equation: Assets =
Liabilities + Owners equity (or net worth). Thus, to find her net worth, Lucy can subtract her
debts from her assets.
164. John is considering starting his degree in business this semester at State University.
John will likely find that:
A. his time would be better spent pursing a career after high school.
B. he will have more fun and excitement than his friends that don’t attend college.
C. his choice of a business major will virtually guarantee him a comfortable retirement
income if he sticks with it.
D. he will likely earn about $1.6 million more during his lifetime than his friends with
only a high school degree.
Feedback: The lifetime income of families headed by individuals with a bachelor’s degree
will be about $1.6 million more than the incomes of families headed by those with a high
school diploma.
165.
Chapter Bonus D – Managing Personal Finances
BonusD-47
The path to success in a capitalist system is to:
A. spend more on capital goods than you do on consumer goods.
B. have access to debt markets.
C. have money to invest.
D. work hard with the goal of moving up in the management of your employer.
166. In order to accumulate capital, young adults are likely to have to:
A. accept a lifestyle that sacrifices some amenities.
B. live beyond their means.
C. rely on credit cards for basic purchases in order to conserve on cash.
D. borrow funds from a bank.
167. The key to generating enough capital for investment for many individuals is to:
A. obtain as many credit cards as possible in order to maximize spending power.
B. live frugally.
C. borrow money from friends and family.
D. buy only high quality consumer goods.
168.
Chapter Bonus D – Managing Personal Finances
Investing in a home is generally considered a:
A. poor choice when compared to renting.
B. wise investment.
C. luxury that should be postponed as long as possible.
D. good decision, but only if you’ve saved enough to pay in full with cash.
169. Which of the following is a benefit of buying a home rather than renting?
A. Real estate taxes and utilities will be fixed.
B. It reduces the need to carry insurance.
C. Paying for a home is a good way to force yourself to save.
D. The entire purchase price of the home can be deducted from taxable income, but this
deduction must be spread over at least 15 years.
170. Buying a _______ is often an attractive strategy for young couples, since they can live
in one unit and rent the other half to supplement their income, while taking tax
deductions on interest and real estate taxes.
A. semiprivate housing unit
B. ranch apartment
C. biplex
D. duplex
BonusD-49
171. The goal of accumulating capital is to allow an individual to:
A. buy the things that satisfy present wants and needs.
B. have funds available to invest.
C. buy now, pay later.
D. establish a good credit rating.
172. Real estate people agree that the key to getting the optimum return on the purchase of
a home is:
A. construction quality.
B. location.
C. tax advantages.
D. design features.
173. Over the long-run, investing in __________ has proven to be a good strategy for
obtaining a high rate of return.
A. U.S. government bonds
B. certificates of deposits
C. corporate bonds
D. stocks
174.
Chapter Bonus D – Managing Personal Finances
About _______ of all U.S. households own stock in corporations.
A. 16 percent
B. 30 percent
C. half
D. three-fourths
175. According to contrarians, the big decline in the stock market during the early 2000s
was:
A. a great opportunity to invest in stocks.
B. proof that the stock market was not as sound an investment as most people thought.
C. a sign that more government regulation was needed to prevent big losses.
D. proof that the future of capitalism should rely more on small, unincorporated
businesses rather than big corporations.
176. Real estate taxes and mortgage interest payments are both:
A. expenses of home ownership on which the government levies a tax.
B. tax deductible for renters.
C. tax deductible for homeowners.
D. taxable income for renters and homeowners.
BonusD-54
185. For a young person, one of the worst places to invest money for the long-term is:
A. a duplex.
B. a bank savings account.
C. a home.
D. the stock market.
Feedback: Bank savings accounts, while safe, offer a very low return relative to other
investments—a fact many young people do not seem to know. Though riskier, real estate and
the stock market are usually better choices for long-term investments than a bank account.
The stock market does tend to go up and down, but over a longer period of time, it has proven
to be one of the best investments.
186. From a financial viewpoint, it is best to buy a:
A. large home in a good neighborhood.
B. very large home in a neighborhood where homes are relatively inexpensive.
C. medium-sized home in a neighborhood where homes are the least expensive.
D. small home in an excellent neighborhood.
Feedback: A home in an excellent location usually is the best financial investment. It is better,
then, to buy a smaller home in a great location.
187.
Chapter Bonus D – Managing Personal Finances
Which of the following is true of credit cards?
A. They are a cheaper way to finance your education.
B. They are an efficient way to keep track of purchases.
C. They are an effective way of controlling the amount of debt the consumer incurs.
D. They are less convenient than carrying cash or writing a check.
Feedback: The danger of a credit card is the flip side of its convenience. Too often,
consumers buy goods and services that they would not normally buy if they had to pay cash or
write a check on funds in the bank. Consumers often pile up debts they are unable to pay. One
advantage of credit cards is that they are an efficient way to keep track of purchases.
188. Slobo is an immigrant to the United States from a formerly communist country. He is
searching for advice to help him succeed in a capitalist system. He would be well advised
to:
A. find a job and live frugally in order to save money to invest.
B. rely heavily on government assistance programs to maintain a relatively comfortable
life style.
C. get a credit card, even if it has a very low credit limit, and use it to establish a good
credit rating.
D. follow the buy now, pay later rule of personal finance.
Feedback: The path to success in a capitalist system is to have capital (money) to invest. For
most people, this requires gaining employment (making money), then saving it by living
frugally.
