Personal Finance: Chapter 1

General Notes

• There is an exam review on February 20th
• The exam covers chapters 1-6

Personal Finance Syllabus

• The framework facilitates achieving personal financial goals as well as financial success throughout life.
• Part 1 involves planning personal finances.
• Part 2 involves managing personal finances.
• Part 3 involves making purchasing decisions.
• Part 4 involves insuring resources.
• Part 5 involves investing financial resources.
• Part 6 involves controlling the financial future.

Chapter 1 Quiz

• A major purpose of personal financial planning is future economic security
• Planning starts by creating a plan of action
• Inflation reduces the buying power of a dollar.
• Savings and investment programs are the main method for achieving financial goals.
• A financial plan is not a family's spending for the next month.
• Opportunity cost refers to trade-offs when a decision is made.
• The final step in the financial planning process is to review and revise your actions.
• Economics refers to changes in prices due to supply and demand.
• Career planning is part of the planning component of financial planning.
• Financial strategies refer to ideas or principles that are considered correct, desirable, or important.

Time Value of Money

• Problem 1 involves finding the future value of $450 six years from now at a 7% interest rate.
• Problem 2 involves finding the future value of $900 saved each year for 10 years at an 8% interest rate.
• Problem 3 involves finding the amount needed to deposit today at a 6% rate to have $1000 five years from now.
• Problem 4 involves finding the amount to deposit today to be able to take out $600 a year for 10 years from an account earning 8%.
• Problem 5 involves setting aside $2,400 a year for the next six years earning 4% to find the future value of this savings amount.

Exhibits

• Exhibit 1-A shows the future value (compounded sum) of $1 after a given number of time periods, given 1% to 11%.
• Exhibit 1-B shows the future value (compounded sum) of $1 paid at the end of each period for a given number of time periods (an annuity), given 1% to 11%.
• Exhibit 1-C shows the present value of $1 to be received at the end of a given number of time periods, given 1% to 12%.
• Exhibit 1-D shows the present value of $1 to be received at the end of a given number of time periods as an annuity, given 1% to 12%.

Chapter 2 Quiz

• Education level is a major influence on a person's potential earning power.
• Aptitude tests measure a person's interests related to different types of work.
• An informational interview helps obtain employment in a specific job position.
• Networking through personal and business contacts can help you find employment opportunities.
• Initial salary will be based on education, training, company size, and salaries for comparable positions.
• An interest inventory is designed to measure aptitude.
• Foreign competition relates to social influence on career opportunities.
• Providing training information for a career area is how professional associations help with career planning.
• Do not include a home address on a résumé.
• Acceptable reasons for leaving your current job: having a low motivation, physical or emotional distress, or limited opportunity for salary or position advancement.

Chapter 3 Quiz

• Avoid keeping financial records in a safe-deposit box.
• A personal balance sheet reports the financial position of a person or family on a specific date.
• Assets represent amounts owed to others that must be paid within the next year might be true.
• When you spend less than your income, net worth, increases.
• A budget deficit happens when actual spending exceeds projected spending.
• Budgets are specific plans for spending.
• Checking accounts are liquid assets.
• Liabilities represent amounts owed to others.
• A personal cash flow statement presents income and payments.
• Fixed expenses: definite financial obligations.

Chapter 4 Quiz

• A general sales tax is the same as an excise tax.
• Not true that taxable income is the amount deducted from a person's pay.
• A tax deduction directly reduces taxes owed.
• Many people mail the full amount owed in federal income tax each April.
• Enrolled agents are not IRS auditors who visit people's homes to verify deductions.
• Mortgage interest is a deductible item.
• An IRA contribution is an example of an adjustment to income.
• An exemption is a reduction from adjusted gross income.
• Field: An IRS agent visits you to verify tax records.
• Interest from municipal bonds is tax-exempt income.

Chapter 5 Quiz

• A quick source of cash comes from liquidating savings
• Demand deposits involve money deposited in savings accounts
• Compared to commercial banks, credit unions usually offer a wider variety of financial services
• With a savings account, daily compounding yields higher earnings than quarterly compounding
• A CD account is not a checking account that earns interest.
• An investment company has the fewest financial services.
• Yield may be referred to as rate of return on a savings account.
• Having certificate of deposit (CD) have saving plans with a set rate of return is beneficial.
• Debit card transactions are most commonly deducted from checking.
• A certified check guarantees payment on a personal check.

Chapter 6 Quiz

• Credit encourages overspending and ties up future income.
• Paying back a one time loan in a particular time is true for open end credit with particular payments.
• Loans on a continuous basis and are billed for partial payments periodically mean that there is closed-end credit.
• Two rules used to measure credit capacity are the debt payments-to-income ratio and debt-to-equity ratio.
• Establishing credit worthiness on the basis of character, capacity, capital, collateral, and conditions is standard.
• Installment sales credit has closed-end credit.
• Revolving check credit has open-end credit.
• Climate is not one of the five payment types.
• It may take up to seven years to report it.

Test your knowledge of personal finance planning. This quiz covers key concepts such as creating a financial plan of action, understanding the impact of inflation, and utilizing savings and investment programs. Review your understanding of trade-offs, opportunity costs, and the steps in the financial planning process.