Chapter 01 – Personal Finance Basics and the Time Value of Money
1. (p. 2) Financial planning has specific techniques that will be effective for every individual
and household.
2. (p. 13) Increased demand for a product or service will usually result in lower prices for the
item.
3. (p. 13) Inflation reduces the buying power of money.
Chapter 01 – Personal Finance Basics and the Time Value of Money
4. (p. 13) Lenders benefit more than borrowers in times of high inflation.
5. (p. 12) Economics is the study of using money to achieve financial goals.
6. (p. 13) A decrease in the demand for a product or service may result in a decrease in wages
for people producing that item.
7. (p. 13) Higher inflation usually results in lower interest rates.
Chapter 01 – Personal Finance Basics and the Time Value of Money
8. (p. 21) Developing and using a budget is part of the “obtaining” component of financial
planning.
9. (p. 24) A financial plan is another name for a budget.
10. (p. 9) Planning to buy a house is an example of an intangible goal.
11. (p. 16) Opportunity costs refer to what a person gives up when making a decision.
Chapter 01 – Personal Finance Basics and the Time Value of Money
12. (p. 16) Opportunity costs refer to time, money, and other resources that are given up when a
decision is made.
13. (p. 17) Time value of money refers to changes in consumer spending when inflation occurs.
14. (p. 17) Interest on savings is calculated by multiplying the money amount times the
opportunity cost times the annual interest rate.
15. (p. 18) Present value is also referred to as compounding.
Chapter 01 – Personal Finance Basics and the Time Value of Money
16. (p. 16) Most decisions have only a few alternatives from which to choose.
17. (p. 5) Risks associated with most financial decisions are fairly easy to measure.
18. (p. 3) Developing financial goals is the first step in the financial planning process.
19. (p. 3) Analyzing your current financial position is a part of the first stage of the financial
planning process.
Chapter 01 – Personal Finance Basics and the Time Value of Money
20. (p. 2) The main goal of personal financial planning is:
21. (p. 13) Higher prices are likely to result from:
22. (p. 13) Who is most likely to benefit from inflation?
Chapter 01 – Personal Finance Basics and the Time Value of Money
23. (p. 13) Higher consumer prices are likely to be accompanied by:
24. (p. 13) With an inflation rate of 9 percent, prices would double in about ___________ years.
25. (p. 15) Increased consumer spending will usually cause:
Chapter 01 – Personal Finance Basics and the Time Value of Money
26. (p. 16) Higher interest rates can be caused by:
27. (p. 17) The risk premium you receive as a saver is based in part on:
28. (p. 16) Which of the following would increase the risk of a loan?
Chapter 01 – Personal Finance Basics and the Time Value of Money
29. (p. 12) The stages that an individual goes through based on age, financial needs, and family
situation is called the:
30. (p. 12) The study of how wealth is created and distributed is:
31. (p. 12) The main economic influence that determines prices is:
Chapter 01 – Personal Finance Basics and the Time Value of Money
32. (p. 12) The Fed refers to:
33. (p. 13) The main responsibility of The Fed is to:
34. (p. 6) 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:
Chapter 01 – Personal Finance Basics and the Time Value of Money
35. (p. 13) Which of the following would cause prices to drop?
36. (p. 21) Attempts to increase income are part of the ____________ component of financial
planning.
37. (p. 22) A major activity in the planning component of financial planning is:
Chapter 01 – Personal Finance Basics and the Time Value of Money
38. (p. 22) The ability to convert financial resources into usable cash with ease is referred to as:
39. (p. 23) The problem of bankruptcy is associated with poor decisions in the ______________
component of financial planning.
40. (p. 22) A question associated with the saving component of financial planning is:
Chapter 01 – Personal Finance Basics and the Time Value of Money
41. (p. 24) A formalized report that summarizes your current financial situation, analyzes your
financial needs, and recommends a direction for your financial activities is a(n):
42. (p. 23) When an individual makes a purchase without considering the financial
consequences of that purchase, ignores the ______________ aspect of financial planning.
43. (p. 23) The success of a financial plan will be determined by:
Chapter 01 – Personal Finance Basics and the Time Value of Money
44. (p. 8) As Jean Tyler plans to set aside funds for her young children’s college education, she
is setting a(n) ____________ goal.
45. (p. 9) ____________ goals relate to personal relationships, health, and education.
46. (p. 9) Brad Johnson has a goal of “saving $50 a month for vacation.” Brad’s goal lacks:
Chapter 01 – Personal Finance Basics and the Time Value of Money
47. (p. 9) Which of the following goals would be the easiest to implement and measure its
accomplishment?
48. (p. 5) Opportunity cost refers to:
49. (p. 16) An example of a personal opportunity cost would be:
Chapter 01 – Personal Finance Basics and the Time Value of Money
50. (p. 17) The time value of money refers to:
51. (p. 17) The amount of interest is determined by multiplying the amount in savings by the:
52. (p. 18) If a person deposited $50 a month for 6 years earning 8 percent, this would involve
what type of computation?
Chapter 01 – Personal Finance Basics and the Time Value of Money
53. (p. 18) Which type of computation would a person use to determine current value of a
desired amount for the future?
54. (p. 13) If inflation is increasing at 3 percent per year, and your salary increases at the same
rate, how long will it take your salary to double?
Chapter 01 – Personal Finance Basics and the Time Value of Money
55. (p. 13) When prices are increasing at a rate of 6 percent, the cost of products would double
in about how many years?
56. (p. 18) Future value calculations involve:
57. (p. 18) If you put $1,000 in a saving account and make no further deposits, what type of
calculation would provide you with the value of the account in 20 years?
Chapter 01 – Personal Finance Basics and the Time Value of Money
58. (p. 3) The first step of the financial planning process is to:
59. (p. 6) ____________ risk refers to the danger of lost buying power during times of rising
prices.
60. (p. 5) Which of the following is an example of opportunity cost?