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Personal Finance > exam 1 > Flashcards

exam 1 Flashcards

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1
Q

Ben Collins plans to buy a house for $210,000. If that real estate is expected to increase in value 3 percent each year, what would its approximate value be six years from now?

A

$250,750.98

210,000 [+/-] [PV] 3 [I/YR] 6 [N] [CPT] [FV]

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2
Q

If you desire to have $20,000 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 4 percent.

A

$16,438

20,000 [FV] 4 [I/YR] 5 [N] [CPT] [PV]

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3
Q

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $15,000 available each year for various school and living expenses. If he earns 4 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $15,000 a year for three years?

A

$41,626.37

15,000 [PMT] 3 [N] 4 [I/YR] [CPT] [PV]

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4
Q

Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account?

A

$1,148,800.13

3400 [+/-] 9 [I/YR] 40 [N] [CPT] [FV]

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5
Q

If you earn 7 percent on your investments, how long would it take for your money to double?

A

10.24 years

100 [+/-] [PV] 200 [FV] 7 [I/YR] [CPT] [N]

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6
Q

How many years will it take to have $100 to grow to $300 if invested at 20 percent compounded annually?

A

6.03 years

100 [+/-] [PV] 300 [FV] 20 [I/YR] [CPT] [N]

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7
Q

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

A

19%

85000 [+/-] [PV] 484050 [FV] 10 [N] [CPT] [I/YR

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8
Q

If you deposit $400 at the end of each year for 10 years in a savings account that pays 6 percent interest per year, how much will you have at the end of 10 years?

A

$5,272.32

400 [+/-] [PMT] 10 [N] 6 [I/YR] [CPT] [FV]

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9
Q

The Fuller Company has received a $50,000 loan. The annual payments are $6,202.70. If the Fuller Company is paying 9% interest per year, how many loan payments must the company make?

A

15

50000 [PV] 6202.70 [+/-] [PMT] 9 [I/YR] [CPT] [N]

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10
Q

Your firm plans to buy a warehouse for $100,000. The bank offers you a 30-year loan with equal annual payments and an interest rate of 8% per year. The bank requires that your firm pay 20% of the purchase price as a down payment, so you can borrow only $80,000. What is the annual loan payment?

A

$7,106.19

80,000 [PV] 30 [N] 8 [I/YR] [CPT] [PMT]

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11
Q

3 main elements that affect financial planning activities:

A
  1. Life situation
  2. Personal values
  3. Economic factors
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12
Q

Economics

A

study of how wealth is created and distributed

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13
Q

Economic conditions that most often influence financial decisions

A
  • Consumer prices
  • Consumer spending
  • Interest rates
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14
Q

Inflation

A
  • a rise in general level of prices

- likely to result from increased demand by consumers without increased supply

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15
Q

Consumer price index (CPI)

A

The annual price increase for most goods and services measured by the Bureau of Labor Statistics

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16
Q

The rule of 72

A

to find out how fast prices will double, divide 72 by annual inflation (or interest) rate

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17
Q

Financial goals should take S-M-A-R-T approach:

A
  • Specific
  • Measurable
  • Action-oriented
  • Realistic
  • Time-based
18
Q

Opportunity cost

A

what you give up by making a choice. This cost, commonly called trade-off, cannot always be measured w/ dollars

19
Q

Most common personal opportunity cost

A

time

20
Q

Time value of money

A

calculates increases in amount of money b/c of interest earned. Saving or investing dollar instead of spending it today results in future amount greater than dollar,

21
Q

Computation of interest is based on:

A

(1) Amount of savings
(2) Annual interest rate
(3) Length of time money remains deposited

22
Q

The main goal of personal financial planning is managing your money to:

A

achieve personal economic satisfaction.

23
Q

An example of a personal opportunity cost would be:

A

time comparing several brands of personal computers

24
Q

If inflation is increasing at 3.9 percent per year, and your salary increases at the same rate, how long will it take your salary to double?

A

19 years

25
Q

If you desire your savings to double in 5 years, what rate of return would you need to earn? (Use the Rule of 72.)

A

14.40%

26
Q

The advantages of personal financial planning include:

A
  • Increased effectiveness in obtaining, using and protecting your financial resources
  • Increased control of your financial affairs by avoiding excessive debt and bankruptcy
  • Improved personal relationships resulting from better communicated financial decisions
27
Q

Kent Fuller is in the 28 percent tax bracket. A nontaxable employee benefit with a value of $500 would have a tax-equivalent value of approximately

A

$694
Tax-equivalent value = Tax-exempt value/(1 –tax rate)
$500/(1 − 0.28) = $694.44

28
Q

Caroline lives in City A and earns $40,000 per year. The cost of living index in City A is 80. She is considering a move to City B which has a cost of living index of 90. How large a salary will she require in City B to maintain her current standard of living?

A

$45,000
Salary in City A x (City B COL index/City A COL index)
=$40,000(90/80)=$45,000

29
Q

Leeanna Roberts uses a computer to organize her personal financial records and update her budget activities.. These activities are an example of:

A

money management

30
Q

One of the main purposes of personal financial statements is to:

A

Measure your progress toward financial goals.

31
Q

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of

A

$28,000
•Net Worth=Assets − Liabilities
= $50,000 − $22,000 = $28,000

32
Q

This month, Kenneth Goldberg has cash inflows of $2,950 and cash outflows of $2,800, resulting in a

A 
surplus of $150
Cash Inflows=$2,950
Cash Outflows=$2,800
Cash Inflows–Cash Outflows=$150>0
This is a surplus.
33
Q

When preparing her monthly budget, Maria Kent has projected income of $3,700. Each month she pays $1,200 in rent, $42 for life insurance, and $240 for her auto loan. What percentage of her budget goes for these fixed expenses?

A

40%
Total Fixed expenses / projected income
= ($1,200 + $42 + $240) / $3,700
= $1,482 / $3,700 = 0.40 = 40%

34
Q

A taxable investment produced interest earnings of $1,200. A person in a 22 percent tax bracket would have after-tax earnings of

A

$936
•Taxable gross earnings –tax owed = After-tax earnings
Tax owed = earnings x tax rate = $1,200 ×0.22 = $264
After-tax earnings=$1,200-$264=$936
•Or:After-tax earnings=Taxable gross earnings x (1–tax rate)
= $1,200 x (1 –0.22) = $936

35
Q

A person has $5,000 in medical expenses and an adjusted gross income of $33,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?

A

$5,000 − ($33,000 ×7.5%) = $2,525.

36
Q

George Washburn had earnings from his salary of $32,000, interest on savings of $200, a contribution to a traditional individual retirement account of $1,200, and dividends from mutual funds of $125. George’s adjusted gross income (AGI) would be

A

32,000 + $200 + $125 –$1,200 = $31,125.

37
Q 
Kim Lee is single and earns $32,000 in taxable income. Use the following tax rate schedule to calculate the taxes he owes. 
Up to $9,525 10%
$9,525-$38,700 12%
$ 38,700 -$82,500 22%
$82,500-$157,500 24%
A

[$9,525 ×0.10] + [($32,000 –$9,525) ×0.12] = $3,649.50

38
Q

Effective personal tax strategies include:

A
  • take advantage of tax credits for which you qualify.
  • consider tax-exempt investments, such as municipal bonds.
  • search out all possible itemized deductions.
  • maximize contributions to tax-deferred retirement programs.
39
Q

balance sheet

A

consists of assets (items of value), liabilities (amounts owed to others), and net worth (the difference between the total assets and total liabilities).

40
Q

cash flow statement

A
  • summarizes actual inflows and outflows of cash during a given time period.
  • report of your spending patterns and can be used to create budget amounts for various expense categories.

Personal Finance (5 decks)

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