Financial Planning & Personal Finance – Finance

Financial Planning & Personal Finance – Finance

This is personal finance course including Financial Planning and managing personal financial activities


The value of items owned minus the amounts owed to others equals:

Net Worth


Which one of the following is most apt to qualify as an itemized deduction?

unreimbursed job-related travel expenses


A decrease in net worth could be the result of:

expenses exceeding income for a month.


Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income.

True


Which type of audit is the least complicated for taxpayers?

a correspondence audit


Thomas Franklin claimed an additional $3,000 in deductions he knowingly knew he did not qualify for so he could reduce his tax bill. This is referred to as tax:

evasion


Which one of the following is the best example of a long-term goal for a young couple?

income for retirement


The main purpose of taxes is to:

generate revenue for funding government programs.


Which of the following would be an example of a personal and employment document?

Social Security card


Mr. and Mrs. Keating want to give their son Dudley a total of $24,000. They each write him a check for $12,000 so they won’t have to pay any gift tax. This is an example of:

Tax avoidance


If someone has stolen your identity, the Federal Trade Commission recommends that you contact the fraud departments of each of the three major credit bureaus.

True


Gordon Carey uses his Visa card to purchase a new digital camera and lens. What type of credit did Gordon use?

Revolving credit


In recent years, membership in credit unions has:

Continued to increase


Karen is notified by her credit card company that the credit limit on her credit card has just been increased to $10,000. This is one example of a change related to

a line of credit.


Which federal credit law sets the procedure for promptly correcting billing mistakes?

Fair Credit Billing Act


With a revolving line of credit, borrowings are permitted up to a specified limit and for a stated period.

True


When preparing a bank reconciliation, outstanding checks should be:

subtracted from the bank statement balance.


Checking accounts are frequently referred to as ____________ deposits.

demand


Patricia McDonald has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500 and owes $7,800 on her auto loan. She has also purchased some stock worth $5,500 and she has a retirement account worth $38,550. What is the total value of her assets?

$171,900


Joan Sanchez is single and earns $40,000 in taxable income. She uses the following tax rate schedule to calculate the taxes she owes.

Up to $8,375-$34,000 10%
$8,375-$34,000 15%
$34,000-$82,400 25%
$82,400-$171,850 28%

What is Joan’s marginal tax rate?

25%


Which of the following is (are) typically considered to be a personal financial record?

Birth Certificate, Marriage license, Certificate of deposit, Social Security Card *All Answers are Correct.


George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to a traditional individual retirement account of $1,500, and dividends from mutual funds of $600. George’s adjusted income (AGI) would be:

$33,900


Kim Ye is single and earns $40,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes.

Up to $8,375-$34,000 10%
$8,375-$34,000 15%
$34,000-$82,400 25%
$82,400-$171,850 28%

Calculate the dollar amount of estimated taxes that Kim owes.

$6,181.25


John Camey goes into a local department store and purchases a new suit. He pays $43 in taxes on this purchase. What type of tax is this most likely to be?

general sales tax


This month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting in a

surplus of $150.


A home file should be used for:

financial records for current needs.


Elizabeth Gleason just died. At the time of her death the total value of her assets was $150,000. The federal government collected $7,500 in taxes based on this value. What type of tax is this most likely to be?

estate tax


A cash flow statement reports a person’s or a family’s:

current income and payments.


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

False


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.

$43,720
Future value calculation (Table 1-A) $40,000 × 1.093 = $43,720.


The stages that an individual goes through based on age, financial needs, and family situation is called the:

adult life cycle.


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?

$26,730


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?

Liquidity risk


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?

Reviewing and revising her financial plan


Trade balance is defined as the difference between a country’s exports and its imports.

True


Increased home building results in:

increased job opportunities, higher wages, increased consumer spending, overall economic expansion.


Analyzing your current financial position is a part of the first stage of the financial planning process.

True


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?

Investing


You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.

True


Credit unions rarely offer the same range of consumer loans that banks and other financial institutions do.

False


You have the right to file your own bankruptcy case and represent yourself at all court hearings.

True


Chapter 7 bankruptcy is also known as straight bankruptcy.

True


In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property.

True


Buying on credit is almost always cheaper than paying cash.

False


The Truth in Lending law does not set the interest rates or tell the creditor how to make interest calculations.

True


Banks often encourage you to make the maximum payment.

False


Jeff Bloom wants to have a house just like the one his parents had when he was a teenager. He finds the house he wants and gets an interest-only loan on it for the first five years. Which one of the answers best explains Jeff’s spending?

the expectation of instant comfort


The CCCS aids families by:

setting up a budget for them.


Which of the following lenders is most likely to be sympathetic about legitimate payment problems?

Credit Union


In a straight bankruptcy, many, but not all, debts are forgiven.

True


The Consumer Credit Counseling Service counseling is usually free.

True


Randy Ice starts the month with a balance on his credit card of $1000. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $500. The average daily balance for the month including the new purchase is $883. The average daily balance for the month excluding the new purchase is $750. The bank charges 1.5 percent per month and uses the average daily balance excluding new purchases method. What would Randy’s finance charges be for the month?

$11.25

Interest = $750 x .015 = $11.25


Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?

Chapter 13


In addition to the Consumer Credit Counseling Service, universities, credit unions, military bases, and state and federal housing authorities sometimes provide credit counseling services.

True


The Consumer Credit Counseling Service will refinance all of your existing debts for you.

False


Which one of the following is not a danger signal of potential debt problems?

repaying loans faster than required


David Wynn gets a personal loan from his credit union for $1,000. David will make monthly payments $85.15 over the next year to repay the loan. What type of financial service is David using?

borrowing service


Installment sales credit is a:

loan that allows you to receive merchandise such as a refrigerator or furniture


Many retailers use open-end credit.

True


Which one of the following is not a source that provides data to credit bureaus?

Internal Revenue Service


The borrower’s attitude toward his or her credit obligations is called:

character.


A term that refers to the borrower’s assets or net worth is called:

capital.


Time deposits consist of:

savings accounts.


Perhaps the greatest disadvantage of using credit is the temptation to overspend.

True


Based on the following information, what amount would be subtracted from the bank balance side of the checking account reconciliation? Service charge $12; Outstanding checks $145; Interest $3.50; Deposit in transit $80

$145.00


Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.

20


A restrictive endorsement will usually include the words “for deposit only.”

True


A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5 Cs of lending?

character


Which federal law requires credit-reporting agencies to send the consumer’s version of a disputed item to certain businesses and creditors?

Fair Credit Reporting Act


Which of the following represent the use of credit?

mortgage


What should you do when you shop on-line using your credit card?

use a secure browser


Savings compounded ____________ would have the highest effective yield.

daily


A certificate of deposit is usually considered to be very liquid.

False


Which federal law protects you by requiring credit bureaus to furnish correct and complete information to creditors?

Fair Credit Reporting Act


A tax ____________ is an amount subtracted directly from the amount of taxes owed.

credit


Which one of the following presents a summary of income and outflows for a period of time?

cash flow statement


Changes in the cost of living are:

different in various geographic areas.


A allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical and child care costs.

flexible spending account


Ms. Nelson is a single mom with three children; Dana is 18 and a high school senior, Derrick is 20 and a college sophomore, and Tonya is 25 and unemployed. All three children live at home. How many exemptions can Ms. Nelson claim on her tax return?

4

She can include herself and all three of her children since two are in school and the third is unemployed and thus dependent upon her mother for support.


Taxable income is used to compute a person’s:

income tax.


Not included in the recent tax credits is a/an _______________ tax credit.

credit card


Katherine Kocher has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a 2-year certificate of deposit worth $5,500 and she has a retirement account worth $38,550. What is the value of her real estate assets?

$98,000


Which one of the following illustrates an insolvent situation?

assets $40,000; liabilities $45,000


Jamie McFarland has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000, and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is the total value of her assets?

$267,500

$4,500 + 128,000 + 62,000 + 73,000 = $267,500


Itemized deductions are recorded on:

Schedule A.


Which of the following would qualify a person for an exemption when computing taxable income?

a dependent


Katherine Kocher has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a 2-year certificate of deposit worth $5,500 and she has a retirement account worth $38,550. What is the total value of her assets?

$171,900

$850 + 1,200 + 98,000 + 12,000 + 3,300 + 12,500 + 5,500 + 38,550 = $171,900


For which of the following types of credit plans is the interest tax deductible?

home equity loan


Al Barkley is single and earns $40,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes.

Up to $8,375 10%
$8,375-$34,000 15%
$34,000-$82,400 25%
$82,400-$171,850 28%

What is Al’s average tax rate?

15.45%

Tax = [$8,375 x .10] + [($34,000 – 8,375) x .15] + [($40,000 – 34,000) x .25] = $6,181.25; $6,181.25/$40,000 = .1545 or 15.45%


A person’s net worth is the difference between the value of the items owned and the amounts owed to others.

True


Which one of the following items is a set amount of income on which no taxes are paid?

standard deduction


Which of the following is not a deposit institution?

life insurance company


An advantage credit unions may have over other financial institutions is:

low-cost personal loans.


In the bank reconciliation process, service fees should be:

subtracted from the checkbook balance.


Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.

True


Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.

False


Most economists do not recognize consumer credit as a major force in the American economy.

False


A creditor may ignore your retirement income in rating your application.

False


Most consumers have only one choice in financing current purchases.

False


Another name for open-end credit is:

Revolving Credit


Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records.

True


When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

False


Interest is a periodic charge for the use of credit, or other finance charges.

True


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?

Implementing her financial plan


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?

Evaluating her alternatives


A financial plan is another name for a budget.

False


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?

Gather information, compare alternatives, and analyze risks


What is meant by the term “Time Value of Money?”

Refers to the increase of an amount of money as a result of interest earned.


With an inflation rate of 9 percent, prices would double in about ___________ years.

8


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

Personal values, household situation, age, income level, marital status, employment situation, and economic conditions.


When prices are increasing at a rate of 6 percent, the cost of products would double in about how many years?

12 Years

72/6= 12


One aspect of financial planning is to control your use of credit. Which aspect of financial planning does this deal with?

Borrowing


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?

Income risk


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