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Exam 1: Personal Finance Basics and the Time Value of Money

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Question 51

Multiple Choice

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A family spends $40,000 on living expenses.With an annual inflation rate of 3 percent,they can expect to spend approximately _______ in three years.

A) $40,300
B) $41,200
C) $42,000
D) $43,720
E) $46,000

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Question 52

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When prices are increasing at a rate of 6 percent,the cost of products would double in about how many years?

A) 7.2 years
B) 10 years
C) 6 years
D) 12 years
E) 18 years

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Question 53

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What types of risks are commonly associated with personal financial decisions? How can these risks be evaluated and minimized to reduce personal and financial difficulties?

Present value is also referred to as compounding.

Mary Sheets is considering investing in 30 year Corporate Bonds issued by Duke Energy Company.She knows that she will earn an interest rate of 8% by purchasing these bonds.However,she is concerned because she might need to take her money out of this investment in a year and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for.What type of risk is Mary concerned about?

When prices are rising at a rate of 3 percent,the cost of products and services would double in ______ years.

Lynn Roy knows that if she continues to work full time,it will be difficult for her to get the time off she needs to be able to travel around the world.However,if she continues to work full time she will more easily earn the money she needs to take her trip and still have money left for her living expenses after she gets back from her trip.Which step in the financial planning process does this scenario demonstrate?

Risks associated with most financial decisions are fairly easy to measure.

Sources for financial planning can be found from:

Opportunity costs refer to what a person gives up when making a decision.

With an inflation rate of 9 percent,prices would double in about ___________ years.

A formalized report that summarizes your current financial situation,analyzes your financial needs,and recommends a direction for your financial activities is a(n) :

Which of the following is usually considered a long-term financial strategy?

As Jean Tyler plans to set aside funds for her young children's college education,she is setting a(n) ____________ goal.

If inflation is increasing at 3 percent per year,and your salary increases at the same rate,how long will it take your salary to double?

Explain why borrowers benefit more than lenders in times of high inflation.

Lynn Roy will retire in the next year and has $675,000 in savings and investments and owns her own home that is worth $250,000.Which step in the financial Planning process does this situation demonstrate?

The time value of money refers to:

The ability to convert financial resources into usable cash with ease is referred to as:

Mary Sander's new job is very demanding.She regularly works long hours and on the weekends.As a result,Mary has not had much time for her family and friends.This is an example of