section 3.2 Study Questions Flashcards
What are the two types of opportunity costs that must be considered?
Personal and Financial
What are four personal resources that require management?
Health, knowledge, skills, time
when do you need to consider the time value of money?
Every time that you spend, save, and invest
What are the three (3) things that you need to know in order to calculate interest?
Principal, annual interest rate, and length of time your money will be in an account
How much will I have earned in interest in 1 year by depositing $2000 at 5% interest?
$100 ($2000 *.05)
What is Future Value?
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.
What is another name for future value?
Compounding
How much would my $2000 deposit be worth in 3 years at 5% interest?
$2315.25
2000 * .05 = 100 + 2000 = $2100
2100 * .05 = 105 + 2100 = $2205
2205 * .05 = 110.25 + 2205 = $2315.25
What is an annuity?
A series of equal regular deposits
What is present value?
The amount of money that you would need to deposit in order to have a desired amount in the future.
What is another name for present value?
Discounting
Which answer will always be higher, present value or future value?
Future Value
What is the time value of money?
The increase of an amount of money due to earned interest or dividends.
What is principal?
The original amount of money on a deposit.
what is the present value of a series of deposits calculation usually used for?
Retirement calculations
What are the eight strategies that you can use to avoid common money mistakes?
Obtain, plan, spend wisely, save, borrow wisely, invest, manage risk, plan for retirement
Obtain
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.
Plan
The key to achieving your financial goals and financial security is to plan how you will spend you money.
Spend Wisely
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.
Save
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.
Borrow Money
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.
Invest
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.
Manage Risk
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.
Plan for Retirement
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.
