Chapter 01 – Personal Finance Basics and the Time Value of Money
61. (p. 6) The changing cost of money is referred to as ____________ risk.
62. (p. 5) The uncertainty associated with decision making is referred to as:
63. (p. 7) The financial planning process concludes with efforts to:
Chapter 01 – Personal Finance Basics and the Time Value of Money
64. (p. 6) Using the services of financial institutions will be most evident in your effort to:
65. (p. 5) Changes in income, values, and family situation make it necessary to
66. (p. 8) Which of the following is usually considered a long-term financial strategy?
Chapter 01 – Personal Finance Basics and the Time Value of Money
67. (p. 3) Lynn Roy will retire in the next year and has $675,000 in savings and investments and
owns her own home that is worth $250,000. Which step in the financial
planning process does this situation demonstrate?
68. (p. 4) 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?
Chapter 01 – Personal Finance Basics and the Time Value of Money
69. (p. 4) Lynn Roy wants to travel around the world. Lynn Roy has several options she can
pursue. She can continue to work full time to earn the money she needs for her trip. She can
work part time so that she can still earn some money but have the time necessary to complete
her trip. She can take full retirement so that she has all the time necessary to complete her trip.
Which step in the financial planning process does this scenario demonstrate?
70. (p. 5) 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?
Chapter 01 – Personal Finance Basics and the Time Value of Money
71. (p. 6) Lynn Roy has decided to take retirement from her job and use the time she has earned
to travel around the world. She has decided to start her trip around the world in Europe by
train and bus and will use her savings to pay for her trip. Which step in the financial planning
process does this scenario demonstrate?
72. (p. 7) Lynn Roy’s goal has been to travel around the world. She has now been traveling for
six months and she has decided she is a little tired of living out of a suitcase. She has decided
to go home, look for a part time job and take shorter trips to locations around the world that
appeal to her. Which step in the financial planning process does this scenario most likely
demonstrate?
Chapter 01 – Personal Finance Basics and the Time Value of Money
73. (p. 6) John Gleason is interested in purchasing a 46″ rear projection TV for his living room.
John knows that right now the TV will cost approximately $1500. John is not sure he can
afford this TV right now but is worried that if he waits, the cost of the TV will rise to $1800.
Which type of risk is John worried about?
74. (p. 6) 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. John wants to borrow the
money to purchase the TV but is a little concerned because he thinks interest rates are going
to fall in the future. He is worried that he might get stuck with a loan at a high interest rate.
What type of risk is John worried about?
Chapter 01 – Personal Finance Basics and the Time Value of Money
75. (p. 6) 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?
76. (p. 6) Mary Sheets 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?
Chapter 01 – Personal Finance Basics and the Time Value of Money
77. (p. 9) 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?
78. (p. 9) Melanie Walsh likes to go to the movies once a week. When she is at the movies, she
generally gets large popcorn and a drink. Melanie wants to be sure that she sets aside money
each week so she can continue going to the movies. What type of goal would this be for
Melanie?
Chapter 01 – Personal Finance Basics and the Time Value of Money
79. (p. 12) Paul Carter is 43 years old, married and has three children, ages 13, 10 and 5. Which
influence on financial planning does this demonstrate?
80. (p. 23) One aspect of financial planning is to make wise decisions as to what to purchase and
when to purchase it. Which aspect of financial planning does this deal with?
81. (p. 23) One aspect of financial planning is to control your use of credit. Which aspect of
financial planning does this deal with?
Chapter 01 – Personal Finance Basics and the Time Value of Money
82. (p. 23) One aspect of financial planning is to make sure you maintain adequate insurance
coverage for your needs. Which aspect of financial planning does this deal with?
83. (p. 23) One aspect of financial planning is to buy stocks, bonds and mutual funds with the
potential for long term growth. Which aspect of financial planning does this deal with?
84. (p. 13) When prices are rising at a rate of 3 percent, the cost of products and services would
double in ______ years.
Chapter 01 – Personal Finance Basics and the Time Value of Money
85. (p. 7) Sources for financial planning can be found from:
86. (p. 14) The annual price increase for consumer goods and services measured by the Bureau
of Labor Statistics is referred called ________.
87. (p. 13) If you desire your money to double in 6 years, what rate of return would you need to
earn?
Chapter 01 – Personal Finance Basics and the Time Value of Money
88. (p. 18) A family spends $40,000 on living expenses. With an annual inflation rate of 3
percent, they can expect to spend approximately _______ in three years.
89. (p. 18) The future value of $1,000 deposited a year for 5 years earning 4 percent would be
approximately
Chapter 01 – Personal Finance Basics and the Time Value of Money
90. (p. 18) You are planning to buy a house in five years. How much do you need to deposit
today to have a $10,000 down payment if your investment will make 6%?
91. (p. 18) John is planning to go to graduate school in a program that will take three years. John
wants to have available $10,000 available each year for his school and living expenses. If he
earns 6% on his investments, how much must be deposited at the start of his studies for him to
withdraw $10,000 a year for three years?
Chapter 01 – Personal Finance Basics and the Time Value of Money
92. (p. 17) Mary Sander’s new job is very demanding. She regularly works long hours and on the
weekends. As a result, Mary has not had much time for her family and friends. This is an
example of
93. (p. 14) During __________, even though prices decline spending slows because consumers
expect prices to continue to decline.
Chapter 01 – Personal Finance Basics and the Time Value of Money
94. (p. 9) Describe the S-M-A-R-T approach to financial planning goal setting. Give an
example.
95. (p. 22) What are the main components of personal financial planning?
96. (p. 11) People are commonly overwhelmed by the many influences on personal financial
decisions. What are the factors affecting financial planning?
Chapter 01 – Personal Finance Basics and the Time Value of Money
97. (p. 6) What types of risks are commonly associated with personal financial decisions? How
can these risks be evaluated and minimized to reduce personal and financial difficulties?
98. (p. 3) Linda Ashworth is trying to decide whether to keep her money in a savings account or
in a mutual fund. What would you tell her to help her analyze her decision?
Chapter 01 – Personal Finance Basics and the Time Value of Money
99. (p. 3) What are the six steps in the financial planning process?
100. (p. 13) Explain why borrowers benefit more than lenders in times of high inflation.
Answers will vary
Chapter 01 – Personal Finance Basics and the Time Value of Money
101. (p. 17) What is meant by the term “Time Value of Money?”