section 3.2 Study Questions

Question 1

What are the two types of opportunity costs that must be considered?

Answer 1

Personal and Financial

Question 2

What are four personal resources that require management?

Answer 2

Health, knowledge, skills, time

Question 3

when do you need to consider the time value of money?

Answer 3

Every time that you spend, save, and invest

Question 4

What are the three (3) things that you need to know in order to calculate interest?

Answer 4

Principal, annual interest rate, and length of time your money will be in an account

Question 5

How much will I have earned in interest in 1 year by depositing $2000 at 5% interest?

Answer 5

$100 ($2000 *.05)

Question 6

What is Future Value?

Answer 6

The amount that your original deposit will be worth in the future based upon earning a specific interest rate over a specific period of time.

Question 7

What is another name for future value?

Answer 7

Compounding

Question 8

How much would my $2000 deposit be worth in 3 years at 5% interest?

Answer 8

$2315.25
2000 * .05 = 100 + 2000 = $2100
2100 * .05 = 105 + 2100 = $2205
2205 * .05 = 110.25 + 2205 = $2315.25

Question 9

What is an annuity?

Answer 9

A series of equal regular deposits

Question 10

What is present value?

Answer 10

The amount of money that you would need to deposit in order to have a desired amount in the future.

Question 11

What is another name for present value?

Answer 11

Discounting

Question 12

Which answer will always be higher, present value or future value?

Answer 12

Future Value

Question 13

What is the time value of money?

Answer 13

The increase of an amount of money due to earned interest or dividends.

Question 14

What is principal?

Answer 14

The original amount of money on a deposit.

Question 15

what is the present value of a series of deposits calculation usually used for?

Answer 15

Retirement calculations

Question 16

What are the eight strategies that you can use to avoid common money mistakes?

Answer 16

Obtain, plan, spend wisely, save, borrow wisely, invest, manage risk, plan for retirement

Question 17

Obtain

Answer 17

Obtain financial resources by working, making investments, or owning property. Obtaining money is the foundation of financial planning because you will use that money for all other financial activities.

Question 18

Plan

Answer 18

The key to achieving your financial goals and financial security is to plan how you will spend you money.

Question 19

Spend Wisely

Answer 19

Many people spend more than they can afford. Other people buy things they can afford but do not need. Spending less than you earn is the only way to achieve financial security.

Question 20

Save

Answer 20

Long-term financial security starts with a saving plan. If you save money on a regular basis, you will have money to pay your bills, make major purchases and cope with emergencies.

Question 21

Borrow Money

Answer 21

When you use your credit card or take out another type of loan, you are borrowing money. Borrowing wisely- and only when necessary- will help you achieve your financial goals and avoid money problems.

Question 22

Invest

Answer 22

People invest for two main reasons: to increase their current income and to achieve long term growth. To increase income, you can choose investments that pay regular dividends or interest. To achieve long-term growth, you might choose stocks, mutual funds, real estate, and other investments that have to potential to increase in value in the future.

Question 23

Manage Risk

Answer 23

To protect your resources in case you are ever seriously injured, get sick, or die, you will need insurance coverage. Insurance will protect you and those who depend on you.

Question 24

Plan for Retirement

Answer 24

Consider the age at which you will like to stop working full time. You should also think about where you want to live and how you will want to spend you time.

Question 25

What does a good financial plan include?

Answer 25

Assessing your present financial situation, making a list of current needs, and planning for future needs.

Question 26

With compounding, your money…

Answer 26

Increases faster over time

Question 27

What simplifies the process of figuring out the effect of compounding?

Answer 27

Future value tables `

Question 28

How would you calculate the second year interest earned?

Answer 28

Add interest earned for the first year to the principle, then take that amount and multiply it by the annual interest rate