Chapter 1 Flashcards

Personal Finance Basics and the Time Value of Money

1
Q

The cost of money and the cost of borrowing credit; the return on $ when saved or invested.

A

Interest

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2
Q

The ability to readily convert financial resources into cash without a loss in value.

A

Liquidity

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3
Q

The chances of losing something of great value (step 4 in the Financial planning process).

A

Risk

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4
Q

Increases in an amount of money as a result of interest earned

A

Time Value of Money

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5
Q

The amount to which current savings will increase based on a certain interest rate and a certain time period; also referred to as compounding.

A

Future value

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6
Q

The current value for a future amount based on a certain interest rate and a certain time period; also referred to as discounting.

A

Present value

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7
Q

The process of managing your money to achieve personal economic satisfaction.

A

Personal financial planning

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8
Q

The use of knowledge and skills for earning, saving, spending, and investing money to achieve personal, family, and community goals.

A

Financial literacy

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9
Q

Three components to personal financial activities

A

Spending
Saving
Sharing

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10
Q

The financial planning process

A

Determine current financial situation
Develop your financial goals
Identify alternative courses of action
Evaluate alternatives (risk assessment)
Create and implement your financial action plan
Review and revise the financial plan

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11
Q

What a person gives up by making a choice

A

Opportunity cost

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12
Q

The stages in the family situation and financial needs of an adult

A

Adult life cycle

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13
Q

The ideas and principles that you consider correct, desirable, and important

A

Values

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14
Q

The study of how wealth is created and distributed

A

Economics

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15
Q

A rise in the general level of prices

A

inflation

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16
Q

Divide 72 by the annual inflation rate to find out how fast prices are rising

A

Rule of 72

17
Q

The legal status of a person who is not able to pay debts owed.

A

bankruptcy

18
Q

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities

A

financial plan

19
Q

A series of equal deposits or payments

A

annuity

20
Q

SMART Goals

A

Specific
Measurable
Action-oriented
Realistic
Time-based

21
Q

Published by the Bureau of Labor Statistics, is a measure of the average change in the prices urban consumers pay for a fixed “basket” of goods and services

A

Consumer price index (CPI)

22
Q

A decline in prices

A

Deflation

23
Q

Total value of goods and services produced within a country’s borders, including items produced with foreign resources

A

Gross Domestic Product (GDP)

24
Q

Demand for goods and services by households and individuals

A

Consumer spending

25
Q

A financial instrument that represents debt or equity

A

security

26
Q

Such as bonds, represent money borrowed by companies or governments

A

debt securities

27
Q

(stock, mutual funds, CDs, commodity futures) represent ownership in a corporation

A

equity securities

28
Q

The most common personal opportunity cost

A

time