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Test Bank for Personal Finance, 7th Edition

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    Personal Finance Seventh Edition Jeff Madura Test Bank (Downl oad only) for Personal Finance Alan Wolk

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    1 Personal Finance, 7e (Madura) Chapter 1 Overview of a Financial Plan 1.1 Developing the Financial Plan 1) Most Americans will never be able to understand and develop a personal financial plan. Answer: FALSE Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 2) The simple objective of financial planning is to make the best use of your resources to achieve your financial goals. Answer: TRUE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 3) An understanding of p ersonal finance is not nece ssary to judge the quality of advice that a financial adviser may give. Answer: FALSE Diff: 1 Question Status: Carryover AACSB: Reflective Thinking 4) The first step in budgeting is to evaluate your current financial position by looking at just your in come and expenses. Answer: FALSE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 5) The current market value of what you own minus the value of what you owe is called your net worth. Answer: TRUE Diff: 2 Q uestion Status: Major Chan ge AACSB: Application of Knowledge 6) Various government agencies have conducted surveys that show most people have a good understanding of personal finance. Answer: FALSE Diff: 1 Question Status: Carryover AACSB: Reflective Thinking

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    2 7) A good understanding of the financial planning process will allow you to make informed decisions without relying on the advice of financial advisers. Answer: FALSE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 8) A t horough unde rstanding of this personal finance book qualifies you to become a financial adviser. Answer: FALSE Diff: 2 Question Status: Carryover AACSB: Reflective Thinking 9) If a person focuses their budget on "spending" vs. "saving," it is more like ly they will A) oversave. B) overspend. C) save just the right amount. D) all of these Answer: B Diff: 1 Question Status: New AACSB: Application of Knowledge 10) Personal finance does not include the process of planning your A) spending. B) financing. C) investing . D) spirituality. Answer: D Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 11) Which item is not one of the components of a personal financial plan? A) Setting aside money for season tickets to your favorite football te am is an example of B) Investing your money C) Planning your retirement D) Budgeting Answer: A Diff: 1 Question Status: Carryover AACSB: Application of Knowledge

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    3 12) A personal finan cial plan specifies financial goals and describes A) saving, investin g, and asset valuation. B) spending, saving, and credit card financing. C) spending, financing, and investment plans. D) saving and spending only. Answer: C Diff: 3 Question Status: Car ryover AACSB: Application of Knowledge 13) All of the following are true with regard to the demand for financial advisers, except A) many people lack an understanding of personal finance. B) many people prefer to rely on advisers rather than making their own decision. C) many people are just not interested in making their own financial decisions. D) only financial advisers can purchase mutual funds for a person's 401(k). Answer: D Diff: 2 Question Status: Major Change AACSB: Application of Knowledge 14) "Big spenders" focus their budgeting decisions on A) reducing expe nses. B) increasing income. C) spending most of their income. D) saving most of their income. Answer: C Diff: 1 Question Status: Carryover AACSB: App lication of Knowledge 15) "Big savers" focus their budget decisions on A) reducing expenses. B) increas ing income. C) spending most of their income. D) saving as much of their income as possible. Answer: D Diff: 1 Question Status: Minor Change AACSB: A pplication of Knowledge

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    4 16) Which of the following is not an asset? A) Your house that you rent B) You r car that you financed C) Your coin collection given to you by your grandfather D) Your textbooks Answer: A Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 17) Which of the following items is not a liability? A) The balance due on y our credit card B) Your college loans C) The wages you give up to take a class D) An IOU to your roommate Answer: C D iff: 2 Question Status: Carryover AACSB: Application of Knowledge 18) A measure of your wealth is A) the highest level of education you 've attained. B) the amount of your annual income. C) the current market value of what you own minus the value of what you owe. D) your tax bracket. Answer: C Diff: 1 Question Status: Major Change AACSB: Application of Knowledge 19) Which of the follow ing is not a financing decision? A) Should you buy Apple stock with savings? B) Should you borrow on your home equity loan to buy Apple stock? C) Should you take a loan and buy a car? D) Should you take a 15 - or 30 - year mortgage to buy a house? Answer: A Diff: 2 Question Status: Major Change AACSB: Application of Knowledge

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    5 20) Which of these statements is true with regards to the 2008 - 2009 financial crisis? A) More than half of the people in the United States lost their jobs. B) The values of many home s were cut in half or more. C) The values of most investments declined by no more than 10%. D) Having a financial plan is of no help when economic conditions are as weak as they were during the crisis. Answer: B Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 21) Amanda has cash of $100, a car worth $5,000 , and books worth $200. Her liabilities include a car loan of $2,000 and a credit card balance of $100. What is the total of her assets, liabilities, and net worth? Answer: Assets o f $5,300, liabilities of $2,100, and a net worth of $3,200. Diff: 2 Questi on Status: Carryover AACSB: Analytical Thinking 1.2 How Personal Finance Can Enhance Your Job Marketability 1) Making personal finance decisions enhances your employability beca use A) employers prefer to hire people with significant assets. B) making decisions increases your decisiveness. C) you are managing yourself and showing initiative. D) None of these are correct. Answer: C Diff: 1 Question Status: New AACSB: Reflective Thinking 2) Organizational skills are an important component in developing a personal financial plan because A) decisions related to one component of the plan may affect all other components. B) you can apply organizational skills on the job. C) it is har d to make a decision when your desk is a mess. D) Both A and B are correct. Answer: D Diff: 2 Question Status: New AACSB: Reflective Thinking

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    6 1.3 Components of a Financial Plan 1) A complete financial plan consists of budgeting, taxes, financing, a nd investin g. Answer: FALSE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 2) If you do not have access to money to cover cash needs, you may have insufficient liquidity. Answer: TRUE Diff: 1 Question Status: Carryover AACSB: App lication of Knowledge 3) Liquidity cannot be enhanced using sound money and credit management. Answer: FALSE Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 4) Mone y management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use. Answer: FALSE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 5) Credit should be used only when necessary, since it usually involves borrowed funds that you will need to pay back with interest. Answer: TRUE Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 6) Your financial plan should include a plan for protecting and enhancing your asset s and income through carrying excess insurance coverage so you can p rofit in the event of a loss. Answer: FALSE Diff: 1 Question Status: Major Change AACSB: Application of Knowledge 7) One of the considerations that determines your investment choices i s the level of risk you are willing to tolerate. Answer: TRUE Diff: 1 Question Status: Carryover AACSB: Reflective Thinking

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    7 8) People do not need to determine how much mon ey to set aside for retirement and how those funds should be invested until they near their retirement age. Answer: FALSE Diff: 2 Question Status: C arryover AACSB: Application of Knowledge 9) Effective estate planning will ensure that your wealth is di stributed according to your wishes, but will do nothing to reduce the potential taxes your estate is subject to. Answer: FALSE Diff: 2 Question Statu s: Carryover AACSB: Application of Knowledge 10) Retirement planning should begin A) as early as possib le in order that you accumulate sufficient funds for retirement. B) as soon as you start working full time. C) a few years before you plan on retiring . D) you do not need to plan since Social Security and your firm's pension will be sufficient. Answer: A Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 11) As a result of the increased estate tax exemption limits enacted with the 20 18 Federal income tax law changes, it is no longer necessary for a family to do estate planning. Answer: FALSE Diff: 2 Question Status: New AACSB: Reflective Thinking 12) ________ is the process of forecasting future expenses and savings. A) Budgeting B) Planning C) Predicting D) Fortune - telling Answer: A Diff: 1 Question Status: Carryover AACSB: Application of Knowledge

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    8 13) ________ involves having access to funds to cover any short - term cash needs. A) Investment B) Money C) Liquidity D) Risk Answ er: C Diff: 1 Question Status: Minor Change AACSB: Application of Knowledge 14) ________ management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short - term investment instruments. A ) Investment B) Money C) Cre dit D) Liquidity Answer: B Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 15) ________ management involves decisions regarding how much credit you need to support spending and which sources of credit to u se. A) Invest ment B) Money C) Credit D) Liquidity Answer: C Diff: 1 Question Status: Carryover AACSB: Application of Knowle dge 16) Which of the following is a credit management decision? A) Purchasing a used car with cash B) Investing your savings in t he stock mark et C) Obtaining a student loan to attend college D) Putting money into your retirement account Answer: C Diff: 1 Question Status: Carryover AACSB: Application of Knowledge

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    9 17) Which of the following is an example of money management? A) P utting your m oney in a savings account at your bank B) Shopping around for the credit card with the best interest rate C) Decid ing to delay buying a new car until you can pay cash D) Paying off a loan early to reduce the interest charges Answer: A Diff: 2 Question Sta tus: Carryover AACSB: Application of Knowledge 18) A plan for ________ is needed to determine how much you could afford to borrow, the length of the loan, and how to select a loan that charges competitive interest rates. A) buying B) financ ing C) spendi ng D) saving Answer: B Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 19) Which of the following is not a way that insurance is designed to protect your wealth? A) Protecting the assets that you own B) Limiting your exp osure to pote ntial liabilities C) Enhancing your income in the event of a loss D) Protecting your investments from downturns in the stock market E) B and D are both correct Answer: E Diff: 2 Question Status: Major Change AACSB: Application of Knowledge 20) What is the core purpose of buying insurance? A) Protect y our wealth and assets B) Make sure you make money on any claim C) Insurance is an expense a careful investor needs to minimize D) Make sure you leave an estate when you are gone Answer: A Diff : 2 Question Status: Carryover AACSB: Application of Knowledge

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    10 21) Which of the following does not protect your assets and/or income? A) Money insurance B) Disability insurance C) Automobile insurance D) Life and health insurance Answer: A Diff: 1 Que stion Status: Carryover AACSB: Application of Knowledge 22) Potential investments include all of the following instruments, except A) stocks and bonds. B) mutual funds. C) real estate. D) lottery tickets. Answer: D Diff: 1 Question Status: Carryover A ACSB: Applic ation of Knowledge 23) Which of the following would not be considered an investment? A) A membership in a golf or swim club B) An art collection C) A savings account D) A mutual fund of stocks and bonds Answer: A Diff: 1 Question Status: Mi nor Change AA CSB: Reflective Thinking 24) Retirement planning should begin A) when you retire. B) shortly after you retire. C) well before you retire. D) at any time. Answer: C Diff: 2 Question Status: Carryover AACSB: Application of Knowledge

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    11 25) F rom a financi al standpoint when should a person start retirement planning and saving? A) When he or she first starts receiving a salary B) At 45 - 50 years of age C) At 50 - 55 years of age D) At 55 - 60 years of age Answer: A Diff: 2 Questio n Status: Carryove r AACSB: App lication of Knowledge 26) Estate planning A) protects your wealth against unnecessary taxes. B) shelters your wealth against all taxes. C) ensures that your wealth is distributed in the manner that you determine. D) A and C are correct. Answe r: D Diff: 2 Question Status: Major Change AACSB: Application of Knowledge 27) The act of determining how wealth will be distributed before or upo n death is A) estate planning. B) retirement planning. C) not needed for most people. D) liquidity plannin g. Answer: A Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 28) ________ is the uncertainty surrounding the potential return o n an investment. Answer: Risk Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 29) Y our ability t o access funds to cover any short - term cash deficiencies is your ________. Answer: liquidity Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 30) During his ________ your Uncle Harvey decides to cut you out of his will. A nswer: estat e planning Diff: 1 Question Status: Carryover AACSB: Application of Knowledge

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    12 31) Most investments are subject to ________, which is the uncertainty surrounding their potential return. Answer: risk Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 32) List the six components of a financial plan. Answer: (a) Bud geting and tax planning (b) Managing liquidity (c) Financing your large purchases (d) Protecting your assets and income (e) Investing your money (f) Planning your retirement a nd estate Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 1 .4 How Financial Plan Decisions Affect Your Cash Flows 1) The major source of cash outflow for most people is the income they receive from employers. Answer: FA LSE Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 2) Which of the following is not a decision that you would probably encounter in managing your budget? A) What expenses you should anticipate B) How much money you should attempt to save each mo nth C) How you will allocate your estate among your heirs D) H ow long you will take to pay off a specific loan Answer: C Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 3) The first step in developing your financial plan is A) establ ish your financial goals. B) pay off all your credit cards. C) buy a cool car then begin saving money. D) get a good job. Answer: A Diff: 2 Question Status: Carryover AACSB: Application of Knowledge

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    13 4) Budgeting helps set goals by estimatin g ________ on a monthly basis to determine how much to save and spend. A) assets and income B) liabilities and expenses C) income and expenses D) net worth and income Answer: C Diff: 2 Question Status: Carryover AACSB: Application of Knowledge 5) A bud get does not A) require thinking and planning. B) require an evaluation of your current financial position. C) help you account for all your income and expenses. D) require the preparation of a will. Answer: D Diff: 2 Question Status: Carryover AACSB: A pplication of Knowledge 6) When estimating expenses for a budget, A) last month's and last year's expenses are not a good starting point. B) many of the same expenses do not occur each month. C) large unusual expenses such as car or hospital bills should be included. D) estimating your future assets is a good starting point. Answer: C Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 7) If your income exceeds the amount you spend, you should ________ your investments or ________ loans. A) reduce; r epay existing B) reduce; obtain more C) increase; repay existing D) increase; obtain more Answer: C Diff: 2 Question Status: Carryover AACSB: Application of Knowledge

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    14 8) To increase your savings, A) income must be increased or expenses de creased. B) e xpenses must be increased. C) income must be decreased. D) net worth must be decreased. Answer: A Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 9) Which of the following would not be a factor in evaluating your current financial po sition? A) Income B) Expenses C) Possible lottery winnings D) Assets Answer: C Diff: 1 Question Status: Carryover AACSB: Application of Knowledge 10) Your net worth will not be increased by which o f the following actions? A) Increasing you r savings fro m 10% to 15% of your earnings B) Receiving a $100 birthday present from your grandmother C) Buying a new home entertainment system and putting the entire amount on your credit card D) Receiving an inheritance Answer: C Diff: 2 Question Status : Carryover AACSB: Application of Knowledge 11) The income in your budget is not affected by A) your education. B) your career decisions. C) the tax laws. D) the standard of living you experi enced as a child. Answer: D Diff: 1 Question Status: Carryov er AACSB: Ap plication of Knowledge

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