Final Exam Study Guide

Question 1

Financial planning helps us

Answer 1

increase assets

Question 2

A balance sheet describes your

Answer 2

financial position at a given point in time

Question 3

The value today of an amount to be received in the future is called

Answer 3

present value

Question 4

To establish credit, you should first

Answer 4

open savings and checking accounts

Question 5

Tax planning is most commonly done to

Answer 5

minimize taxes

Question 6

Insurance is a tool that can reduce your

Answer 6

economic risk

Question 7

T/F:
The need for financial planning declines as your income increases.

Answer 7

False

Question 8

Which of the following practices helps an individual survive in a financial crisis?

Answer 8

Establishing an emergency fund with six months’ worth of income

Question 9

Which of the following represents the three stages of the financial planning life cycle?

Answer 9

Wealth accumulation, wealth preservation, and wealth transfer

Question 10

Which of these is an example of a liquid asset?

Answer 10

a savings account, checking account, or cash

Question 11

Inflation is expected to be 4% in the coming year. If Mr. Gonza earned $37,000 this year, how much must he earn in the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures?

Answer 11

$38,480

Question 12

Tax credits reduce your

Answer 12

tax liability

Question 13

T/F:
Compound interest means that a savings account earns interest on the interest previously earned

Answer 13

True

Question 14

If you write a check for an amount greater than your account balance, the result will be a(n):

Answer 14

overdraft

Question 15

T/F:
The purpose of a credit investigation is to evaluate the kind of risk that you pose to the lender.

Answer 15

True

Question 16

Which of the following is an example of phishing?

Answer 16

pretending to be an employee of a financial insititution

Question 17

It is not advisable to borrow from

Answer 17

family

Question 18

If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be

Answer 18

repaid is $1,900.80

Question 19

It is better to use your savings instead of borrowing to make a purchase when

Answer 19

the cost of borrowing is much greater than the interest earned on savings

Question 20

Which of the following statements regarding risk avoidance is true

Answer 20

Risk avoidance is any activity that helps evade an act that creates a risk.

Question 21

Ashlyn is 40 years old and earns $35,000 annually. The multiple-of-earnings method used to determine the amount of life insurance coverage needed for an individual shows that she should have 6.5 times her earnings. How much insurance should Ashlyn

Answer 21

$227,500

Question 22

An increase in the amount of the deductible will

Answer 22

decrease the amount of insurance premiums

Question 23

It pays to comparison shop for insurance policies because of the

Answer 23

large variations in premiums and services

Question 24

One of the biggest financial benefits of starting early to save for your retirement fund is related to

Answer 24

compound interest

Question 25

A written and legally enforceable document expressing how a person’s property should be distributed on his or her/their death is known as a(n):

Answer 25

will