Personal Finance: Turning Money into Wealth, Wealth, 7e (Keown) Chapter 1 The Financial Planning Process
1.1 Facing Financial Challenges 1) Once a sound financial plan is in place, there should be no need to ever change it. Answer: FALS !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing ') One purpose of financial planning is to help %ou legall% reduce the a(ount of taes %ou have to pa% on %our earnings. Answer: "*+ !iff: 1 "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing ) -hen co(paring two different invest(ent opportunities the investor should alwa%s choose the invest(ent that (ini(ies the total a(ount of taes paid. Answer: FALS !iff: ' "opic: /ini(iation /ini(iat ion of "aes AACS$: Anal%tical "hin&ing 0) Annual public school tuition and fees are three ti(es (ore epensive than private school tuition and fees. Answer: FALS !iff: ' "opic: "o pic: Financial Challenges AACS$: Anal%tical "hin&ing ) $eing financiall% secure involves balancing what %ou earn with A) %our invest(ents. $) what %ou spend. C) %our retire(ent plans. !) %our current level of debt. Answer: $ !iff: 1 "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing
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4) Financial planning (ight not help %ou earn (ore, but it can help %ou use the (one% %ou do earn to achieve %our A) life6s purpose. $) drea(s. C) financial goals. !) desired lifest%le. Answer: C !iff: 1 "opic: "o pic: Financial 7oals AACS$: Anal%tical "hin&ing 8) -hich state(ent is true about (anaging personal finances9 A) "he abilit% to (anage finances is a s&ill with which %ou are born. $) #ersonal finance courses are co((onl% offered in high school. C) Financial difficulties can be a (aor cause of (arital proble(s. !) #ersonal financial (anage(ent is not a s&ill worth learning. Answer: C !iff: ' "opic: "o pic: Finance Co(pan% AACS$: Anal%tical "hin&ing ;) 5n order for %our financial plan to be realistic and attainable it needs to be b e based upon %our A) budget. $) inco(e level. C) nu(ber of ta deductions, ee(ption, ee (ption, eclusions, and credits. !) balance sheet. ) none of the above. Answer: $ !iff: ' "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing <) #ersonal financial planning can help %ou to A) deal with unplanned health issues. $) (ini(ie %our ta pa%(ents to +ncle Sa(. C) (ini(ie %our chances of personal ban&ruptc%. !) have enough (one% for a co(fortable retire(ent. ) all of the above. Answer: !iff: ' "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing
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13) -hat ele(ents are found in an effective financial plan9 A) Fleibilit% to allow for changes in %our situation $) Sufficient li=uidit% to (eet unepected needs C) 5nsurance protection fro( catastrophic events !) >elps %ou legall% reduce the a(ount of taes %ou owe ) All of the above Answer: !iff: 1 "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing 11) "his course?tet will assist %ou in acco(plishing si financial obectives. -hat are the%9 Answer: 1. /anag /anagee the the unp unpla lanne nned. d. '. Accu(ul Accu(ulate ate wealt wealth h for spec special ial epen epenses ses.. . *ealist *ealistica icall% ll% save save for for reti retire( re(ent ent.. 0. Cove Coverr %ou %ourr ass asset ets. s. . 5nve 5nvest st int intel elli lige gent ntl% l%.. 4. /ini(i /ini(ie e %our %our pa%( pa%(ent entss to +ncl +nclee Sa(. Sa(. !iff: ' "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing 1') >ow will a financial plan help %ou save for retire(ent9 Answer: A strong financial plan will help %ou forecast the costs of retire(ent retire(ent and develop a plan that will allow %ou to live a co(fortable life after %ou retire. !iff: ' "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing 1.' "he #ersonal Financial #lanning #rocess 1) "oda%, "oda%, (ost A(ericans over the age of 4 have ade=uate savings and inco(e available av ailable to the( during retire(ent. Answer: FALS !iff: 1 "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing ') "he a(ount of current inco(e that %ou earn toda% isn6t relevant to setting %our long ter( goals for the future. Answer: FALS !iff: 1 "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing
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) A financial plan is onl% concerned with %our future earnings and epenses. ep enses. An ea(ination of %our current financial situation is not so i(portant. Answer: FALS !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 0) -hile each person6s financial plan is different, so(e co((on factors guide all sound financial plans: fleibilit%, fleibilit%, li=uidit%, li=uidit%, protection, and (ini(iation of taes. Answer: "*+ !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing ) Financial planning is an ongoing ong oing process. As %our financial situation and position in life change, the plan changes. Answer: "*+ !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 4) -hich of the following is one of the five basic steps in personal financial planning9 A) valuate %our personal health. $) !efine %our career goals. C) !evelop a plan of action. !) Let an accountant review %our plan. Answer: C !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 8) -hich basic step to personal financial planning should be considered when ea(ining %our current financial situation9 A) Step 1 $) Step ' C) Step !) Step 0 Answer: A !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing
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;) -hich basic step to personal financial planning should be considered when establishing %our personal financial goals9 A) Step 1 $) Step ' C) Step !) Step 0 Answer: $ !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing <) "he personal financial planning process consists of @@@@@@@@ steps. A) three $) five C) seven !) ten Answer: $ !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 13) -hile each person6s financial plan is different, so(e co((on factors guide all sound financial plans. -hich of the following is one of the co((on factors9 A) Sustainabilit% $) 5lli=uidit% C) #rotection !) /ai(iation of taes Answer: C !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 11) valuating %our financial health consists of A) preparing a personal balance sheet. $) deter(ining what %ou are worth. C) preparing a personal inco(e state(ent. !) deter(ining where %our (one% co(es fro( and where it goes. ) all of the above. Answer: !iff: 1 "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing
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1') ou need to review %our progress and reevaluate and revise %our plan BStep ) because A) %our financial needs change over the course of %our life. $) %our e(plo%(ent situation changes over ti(e. C) %our net worth changes over ti(e. !) %our fa(il% situation (ight change over ti(e. ) all of the above are good reasons to periodicall% review %our financial plan. Answer: !iff: "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 1) Suppose that %ou ust co(pleted %our first %ear of college with 1',333 in loans and plan to borrow the (ai(u( each %ear fro( now until graduation. ou ou have never accounted for the wa% %ou spend %our (one%, do not have a budget, and want wan t to insure that %ou will be able to repa% %our loans after college. -hat is the (ost i(portant thing %ou can do right now9 A) "al& "al& to %our parents pa rents about an allowance. $) Disit Disit %our career counselor co unselor at school. C) As& a friend who too& the #ersonal Finance course for advice. !) 5((ediatel% begin to develop a personal financial plan. Answer: ! !iff: "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing 10) Suppose %ou have ust retired, have accu(ulated (an% luur% goods over the %ears, still owe a (ortgage on %our ho(e, still have unpaid travel epenses on %our credit cards, and have helped %our adult children financiall%. our our spouse has recentl% passed awa%, and %ou (iss his?her contribution to the household inco(e. -hich step in the personal financial planning process have %ou neglected9 A) !evelop %our financial health. $) !efine %our financial goals. C) !evelop a plan of action. !) 5(ple(ent %our plan. ) *eview %our progress, reevaluate, and revise %our plan. Answer: !iff: ' "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing
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1) -hile reviewing %our current financial plan, %ou discover that %ou (ost li&el% won6t achieve %our long ter( financial goals. -hat should %ou do now9 A) Loo& at increasing %our inco(e. $) Loo& at cutting bac& on %our epenses. C) Loo& at revising %our goals. !) All of these would be realistic things to do. Answer: ! !iff: "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 14) Step of the personal pe rsonal financial planning process is E!evelop a #lan of Action.E Action.E According to %our tet, which of the following is not one of the Eco((on concernsE that should guide all financial plans9 A) Fleibilit% $) Longter( profitabilit% C) Li=uidit% !) #rotection ) /ini(iation of taes Answer: $ !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 18) "he ter( that considers having (one% readil% available when %ou need it is the concept of A) fleibilit%. $) li=uidit%. C) e=uit%. !) solvenc%. ) none of the above. Answer: $ !iff: 1 "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing
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1;) !escribe the five steps in the personal financial planning process. Answer: Step 1: valuate %our financial health b% ea(ining %our current financial situation. Loo& at %our whole financial picture. Geep records and deter(ine %our net worth. Step ': !efine %our financial goals b% describing what, when, and how (uch %ou want to do. -ritten -ritten goals will draw %ou to the(. Step : !evelop a plan of action to reach %our goals. !on6t ust thin& about goals H decide how %ou will carr% the( outI Let fleibilit%, li=uidit%, li=uidit%, protection, and (ini(iation of taes guide %our plan. Step 0: 5(ple(ent %our plan b% carr%ing it out H ust do itI Stic& to %our plan. p lan. Step : *eview %our progress, reevaluate, and revise %our plan periodicall% and as needed. !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: Anal%tical "hin&ing 1<) -h% do individuals need to plan for their finances9 Answer: -ithout -ithout financial planning individuals will suffer and be at a loss both in the present ti(e and in the future. "oo (an% people reach retire(ent bro&e and in poor health. "heir financial (eans are so li(ited the% live out a (eager eistence and beco(e a burden upon fa(il% and societ%. Life is (eant to be eno%ed and onl% b% planning can we do that. $ecause it is alwa%s easier to spend than save, financial planning is a (ustI !iff: ' "opic: "o pic: Financial #lanning AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents '3) laborate upon the four co((on concerns that should guide all financial plans. Answer: our financial financial plan should be fleible enough to respond to changes in %our life and unepected events. #lanning (ust allow so(e funds to be li=uid to allow access to (one% when %ou need it =uic&l%. #lan for protecting %our assets and %ourself with ade=uate insurance. Finall%, %our financial plan should ta&e taes into account to pa% as little as legall% possible. !iff: "opic: "o pic: "he Financial #lanning #rocess AACS$: *eflective "hin&ing '1) -hat ele(ents are included in a solid financial plan9 Answer: A solid personal financial plan includes an infor(ed and controlled budget, outlines %our invest(ent strateg%, and reflects %our uni=ue personal and financial goals. !iff: ' "opic: "o pic: "he Financial #lanning #rocess AACS$: *eflective "hin&ing
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'') -h% do %ou need to have li=uidit%9 Answer: Li=uidit% allows %ou %ou to access %our (one% with ease, when when %ou need it. Life happensJ at an% (o(ent, %ou could develop an illness, lose a ob, or o r wrec& %our car. -hen unforeseen circu(stances occur, %ou need to have access to enough (one% to (a&e it through. !iff: ' "opic: Li=uidit% AACS$: *eflective "hin&ing 1. stablishing our Financial 7oals 1) #roper financial planning can help %ou use %our current inco(e to achieve %our long ter( financial goals Answer: "*+ !iff: 1 "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing ') A shortter( goal (ight ta&e fro( one to 13 %ears to acco(plish. Answer: FALS !iff: 1 "opic: "o pic: Financial 7oals AACS$: Anal%tical "hin&ing ) 5n the t%pical consu(er6s financial life c%cle, one difference between stage ' and stage is that in stage %ou will earn (ore than %ou spend, whereas in stage ' %ou will spend (ore than %ou earn. Answer: FALS !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing 0) stateplanning tools such as wills, living wills, health proies, powers of attorne%, and record&eeping should all be in place to help protect %ou, %our assets, and %our heirs. Answer: "*+ !iff: ' "opic: "o pic: state #lanning AACS$: Anal%tical "hin&ing
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) "he (aor reason to (a&e a financial plan is to A) account for %our spending. $) see where %ou are overspending or underspending. C) achieve %our financial goals. !) allow for a surplus. ) serve as a ta planning guide. Answer: C !iff: 1 "opic: "o pic: Financial 7oals AACS$: Anal%tical "hin&ing 4) -hat is the significance of the financial life c%cle9 A) "o help %ou to co(pare %our situation with other people6s peop le6s situation $) "o better understand how %our financial needs will (ost li&el% change over ti(e C) "o allow %ou to be (ore proactive in dealing with epected changes chan ges in the future and ta&e steps toda% to prepare for the( !) "o help %ou realie that %our original plan is sufficient and doesn6t need to change ) $oth $ and C are significant aspects of the financial life c%cle. Answer: !iff: "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing 8) -hich of the following t%picall% occurBs) during stage 1 of the financial life c%cle9 A) 5nitial goal setting $) 5nsurance planning C) Saving for goals !) >o(e purchase ) All the above Answer: !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing ;) Suppose that %ou are a '1%earold college student. -hat stage of the financial life c%cle are %ou currentl% in9 A) Stage 1: wealth accu(ulation $) Stage ': the golden %ears C) Stage : the retire(ent %ears !) Stage 0: the for(ative %ears ) Stage : the educational %ears Answer: A !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing
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<) After retire(ent starts, which aspect of financial planning beco(es i(perative9 A) /aintaining a regular pattern of saving $) Longter( borrowing co((it(ents C) state planning !) ffects of inflation Answer: C !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing 13) -hat should %ou do with %our goals on o n a fre=uent basis throughout %our lifeti(e9 A) #rioritie the( $) /odif% the( C) #ut the( in writing !) All of the above Answer: ! !iff: ' "opic: "o pic: Financial 7oals AACS$: Anal%tical "hin&ing 11) An An econo(ic condition in which rising prices reduce the purchasing power of (one% is ter(ed A) deflation. $) inflation. C) stagflation. !) cash erosion. ) none of the above. Answer: $ !iff: 1 "opic: 5nflation AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents 1') -hen %ou are involved in @@@@@@@@ planning, %ou are planning for %our eventual death and the distribution of %our wealth to %our heirs. A) prenatal $) beneficiar% C) estate !) actuarial ) none of the above Answer: C !iff: 1 "opic: "o pic: state #lanning AACS$: Anal%tical "hin&ing
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1) $ased on the Life C%cle of Financial #lanning, when would be a good ti(e to review and possibl% adust an effective financial plan9 A) A reall% effective financial plan doesn6t do esn6t need to be adusted. $) -hen %ou get (arried C) -hen %ou have children !) -hen the stoc& (ar&et goes up ) $oth $ and C are correct answers. Answer: !iff: ' "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing 10) On his goals wor&sheet, Ka(es has written down his h is shortter( goals for the net %ear. >e has prioritied his goals and deter(ined a feasible due date b% which he wants to achieve his goals. According to the tetboo&, the final step Ka(es needs to co(plete in the goals process is to A) deter(ine an appropriate cost for each of his listed goals. $) post his goals wor&sheet on his refrigerator so that he can see it ever% da%. C) contact his financial advisor for approval of his goals. !) e(ail hi(self a cop% of the goals wor&sheet in case he loses the paper cop%. Answer: A !iff: ' "opic: "o pic: Financial 7oals AACS$: *eflective "hin&ing 1) -hich stage in the Financial Life C%cle is the longest in ter(s of %ears9 A) Stage 1: wealth accu(ulation $) Stage ': the golden %ears C) Stage : the retire(ent %ears !) Stage 0: the for(ative %ears Answer: A !iff: 1 "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing 14) According to the Geown boo&, %ou (ight begin to thin& about estate planning during this stage of the financial life c%cle. A) Stage 1: wealth accu(ulation $) Stage ': the golden %ears C) Stage : the retire(ent %ears !) Stage 0: the for(ative %ears Answer: $ !iff: "opic: "o pic: state #lanning AACS$: Anal%tical "hin&ing
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18) Suppose that %ou are a 43%earold business owner. -hat -hat stage of the financial life c%cle are %ou currentl% in9 A) Stage 1: wealth accu(ulation $) Stage ': the golden %ears C) Stage : the retire(ent %ears !) Stage 0: the for(ative %ears Answer: $ !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: Anal%tical "hin&ing 1;) !uring which stage of the financial life c%cle c %cle do (an% people (a&e their biggest invest(ent, the purchase of a ho(e9 A) Stage 1: wealth accu(ulation $) Stage ': the golden %ears C) Stage : the retire(ent %ears !) Stage 0: the for(ative %ears Answer: A !iff: ' "opic: "o pic: Financial #lanning AACS$: Anal%tical "hin&ing 1<) -hat is one difference between stage ' in the Financial Life C%cle and stage in the Financial Life C%cle9 Answer: !uring stage ', %ou will will earn (ore than %ou spendJ whereas during stage %ou will spend (ore than %ou earn. !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: *eflective "hin&ing
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'3) plain the essence and i(portance of each of the stages in the financial life c%cle. Answer: "he overall financial life life c%cle allows %ou to better better understand the ti(ing and areas of financial concern that %ou6ll probabl% eperience. 5t allows %ou to focus on those concerns earlier and to plan ahead to avoid future financial proble(s. Stage 1 is a ti(e of wealth accu(ulation, a ccu(ulation, initial goal setting, ho(e purchase, fa(il% for(ation, insurance planning, saving for goals, and so(e ta and estate planning. 5t6s a ti(e to develop a regular pattern of saving because it6s te(pting to spend rather than save. Consu(ers are ages 1; through 0 in this stage. Stage ' covers ages to 40 or the golden %ears approaching retire(ent. "his is a transition fro( the earning %ears when %ou will earn (ore than %ou spend. /uch of the financial activities will be spent in fine tuning. Consu(ers put an e(phasis on ta and estate planning, pa%ing ourselves first, and insurance planning. Stage consists of the retire(ent %ears, for (ost people age ag e 4 and older. Consu(ers reap the benefits of sound planning or the losses fro( unsound planning. ou ou will atte(pt atte(pt to ensure continued financial securit% and perhaps wor& partti(e. p artti(e. !iff: ' "opic: "o pic: Financial #lanning Life C%cle AACS$: *eflective "hin&ing '1) !ifferentiate between shortter(, inter(ediate, and longter( goals. 7ive ea(ples. Answer: Shortter( goals can be acco(plished acco(plished within one %ear, %ear, such as ta&ing a vacation. 5nter(ediate goals ta&e between one and ten %ears to reach, such as saving for a college education or the down pa%(ent on a house. Longter( goals ta&e (ore than ten %ears to acco(plish. *etire(ent planning is a co((on longter( goal. !iff: "opic: "o pic: Financial 7oals AACS$: *eflective "hin&ing '') -h% should %ou prioritie %our financial goals9 Answer: #rioritiing goals (ight (ight (a&e %ou realie that so(e so(e of %our goals are si(pl% si(pl% unrealistic, leading %ou to reevaluate the(. >owever, >owev er, once %our final goals are in place, the% beco(e the cornerstone of %our personal financial plan, serving as a guide to action and a bench(ar& for assessing the effectiveness effectiveness of the plan. !iff: ' "opic: "o pic: Financial Challenges AACS$: *eflective "hin&ing
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') 7ive an ea(ple of a decision that (ight not be considered co nsidered a financial decision but will have a (aor i(pact on %our financial situation. Answer: "he decision to have a child child will have a (aor i(pact i(pact on %our financial situation. situation. Although finances aren6t considered the pri(ar% factor deter(ining when to have children, the ti(ing certainl% has enor(ous financial i(plications, causing significant changes in housing, child care, and education costs. Considering that childrearing can cost <,4; to '','13 per child per %ear, saving to finance that child6s college education (ight pose as a real challenge. !iff: "opic: "o pic: Financial Challenges AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents 1.0 "hin&ing "hin&in g About our our Career 1) A welleducated and trained e(plo%ee is virtuall% guaranteed ob securit% b% toda%6s e(plo%ers. "herefore, he or she doesn6t need to worr% about &eeping his or her s&ills current. Answer: FALS !iff: 1 "opic: "o pic: Career Choices AACS$: *eflective "hin&ing ') "he (ost i(portant aspect of choosing a career is the a(ount of inco(e that career will generate over %our lifeti(e. Answer: FALS !iff: 1 "opic: "o pic: Career Choices AACS$: *eflective "hin&ing ) Salaries var% for individuals wor&ing in si(ilar obs for different co(panies, but one thing is clear: the (ore specialied s&ills and training a ob re=uires, the higher the ob tends to pa%. Answer: "*+ !iff: ' "opic: "o pic: !eter(inants of 5nco(e AACS$: *eflective "hin&ing 0) "he first steps in career planning are conducting a selfassess(ent and developing an understanding of what sort of lifest%le %ou wish to lead. Answer: "*+ !iff: 1 "opic: "o pic: Career #lanning AACS$: Anal%tical "hin&ing ) According to a resu(edoctor.co( recruiting surve%, the (ost co((on (ista&e (ade b% ob interviewees is tal&ing too (uch. Answer: "*+ !iff: ' "opic: "o pic: Career Choices AACS$: *eflective "hin&ing 1 Cop%right 2 '314 #earson ducation, 5nc.
4) -hat is the (ain factor in deter(ining %our potential inco(e level9 A) ducation and s&ills that %ou have attained $) -ho %ou &now in %our co(pan% ad(inistration C) our our age and %ears of e(plo%(ent !) "he sie of the co(pan% %ou wor& for Answer: A !iff: 1 "opic: "o pic: !eter(inants of 5nco(e AACS$: Anal%tical "hin&ing 8) -hich of the following state(ents applies to obtaining an undergraduate college degree9 A) "he% are epensive and rarel% pa% p a% off in increased earnings. $) "here is no relationship between personal wealth and earning a college degree. C) 5t (a% be the single best invest(ent %ou will ever (a&e. !) All of the above. Answer: C !iff: 1 "opic: "o pic: !eter(inants of 5nco(e AACS$: Anal%tical "hin&ing ;) #robabl% the (ost i(portant deter(inant of %our future earnings will be A) %our highest level of education obtained. $) the sie of the co(pan% where %ou will wor&. C) %our seniorit% with %our co(pan%. !) oining a labor union. Answer: A !iff: 1 "opic: "o pic: !eter(inants of 5nco(e AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents <) One of the (ost i(portant factors to re(e(ber when hunting for %our first ob is to A) seie ever% opportunit%. o pportunit%. $) wait patientl%. patientl%. C) start earl%. !) procrastinate. Answer: C !iff: 1 "opic: "o pic: Career #lanning AACS$: Anal%tical "hin&ing
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13) @@@@@@@@ is the process of o f identif%ing a ob that %ou feel is i(portant and that will lead to the &ind of lifest%le %ou desire. A) Financial planning $) Career planning C) 7oal planning !) *etire(ent planning Answer: $ !iff: 1 "opic: "o pic: Career #lanning AACS$: Anal%tical "hin&ing 11) According According to a '310 resu(edoctor.co( recruiting surve%, the (ost co((on (ista&e (ade b% ob interviewees is A) sha&ing hands h ands softl%. $) tal&ing too (uch. C) dressing inappropriatel%. inappropriatel%. !) arriving late to an interview. Answer: $ !iff: ' "opic: "o pic: Career #lanning AACS$: Anal%tical "hin&ing 1') -hat is the relationship between earnings, education, and standard of living9 Answer: "here is a direct relationship between earnings and standard standard of living and education. "he (ore education an individual has, the (ore he or she will earn in general and thus eno% a higher standard of living. "he opposite holds true also. "he less education one has the lower the earnings and standard of living. !iff: ' "opic: "o pic: !eter(inants of 5nco(e AACS$: *eflective "hin&ing 1) -h% is it i(portant to conduct an effective selfassess(ent9 selfassess(ent9 Answer: Conducting an effective selfassess(ent selfassess(ent allows %ou to loo& honestl% at (an% (an% aspects of %our life. After co(pleting co(pleting the assess(ent, %ou will have a valuable understanding of %our interests, s&ills, values, personal traits, and desired lifest%le. "hen %ou can research career options and identif% those in which %our abilities are valued. Once %ou6ve narrowed down a list of possibilities, weigh the positive and negative aspects of each profession. !iff: ' "opic: "o pic: Career #lanning AACS$: Application of Gnowledge Gnowledge
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10) List so(e wa% to increase %our value as an e(plo%ee. Answer: !o %our %our best wor&. #roect the right i(ageone aligned with the organiation6s values. 7ain an understanding of the organiation6s power structure so that %ou can wor& within it. 7ain visibilit%. visibilit%. /a&e those with power aware of %our contributions. *e=uest new assign(ents in order to gain eperience and an understanding of the various operations of the organiation. $e lo%al to and supportive of %our boss. *e(e(ber, he or she controls %our i((ediate future. Continuall% ac=uire new s&illsparticularl% s&ills that are not eas% to duplicate. !evelop a strong networ& of people who can assist %ou when %ou loo& for a new ob. #a% attention to ethical considerations. "he (ost da(aging event that %ou can eperience is for %our cowor&ers to lose confidence in %our ethical standards. thical violations end careers. !iff: ' "opic: "o pic: Career #lanning AACS$: *eflective "hin&ing 1. Lessons fro( the *ecent cono(ic !ownturn 1) "he econo(ic downturn that began in '33; resulted in negative conse=uences, including A) a dra(atic increase in une(plo%(ent rates. $) disrupted financial (ar&ets. C) difficult% for consu(ers to borrow (one% fro( lending institutions. !) all consu(ers increased their wealth. ) onl% A, $, and C are correct. Answer: !iff: ' "opic: "o pic: Financial Life Life vents AACS$: Anal%tical "hin&ing ') "he econo(ic downturn that began in '33; de(onstrated that (an% A(ericans have sufficient e(ergenc% funds. Answer: FALS !iff: ' "opic: "o pic: Financial Life Life vents AACS$: Anal%tical "hin&ing ) 5t is i(portant to ta&e a close loo& at the '33; econo(ic downturn as a (eans to highlight how vulnerable A(erican6s finances are. Answer: "*+ !iff: 1 "opic: "o pic: Financial Life Life vents AACS$: *eflective "hin&ing
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0) According to a recent *oc&efeller Foundation report, the financial issue A(ericans worr% about the (ost is the abilit% to pa% A) for (edical epenses. $) for retire(ent epenses. C) debt epenses. !) ho(e (ortgage epenses. Answer: $ !iff: "opic: "o pic: Financial Life Life vents AACS$: Anal%tical "hin&ing ) -hat did the econo(ic downturn that began beg an in '33; reveal about abo ut (an% A(ericans6 financial concerns9 >ow can %ou alleviate those concerns in %our own personal financial planning9 Answer: /an% A(ericans A(ericans are not ade=uatel% prepared for retire(ent and have insufficient insufficient e(ergenc% funds, too (uch debt, and inade=uate health insurance. "hese concerns can be alleviated with proper financial planning, (aintaining a sufficient e(ergenc% fund, avoiding ecessive debt, and carr%ing ade=uate health insurance. !iff: "opic: "o pic: Financial Life Life vents AACS$: *eflective "hin&ing 1.4 "en "en #rinciples of #ersonal Finance 1) /ost individuals will reach their financial goals without planning or bu dgeting. Answer: FALS !iff: 1 "opic: "o pic: #rinciple ': Mothing Mothing happens without a plan AACS$: Anal%tical "hin&ing ') All else being e=ual, an increase in inflation will cause investors to re=uire a higher rate of return on an asset. Answer: "*+ !iff: 1 "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents ) !iversification allows %ou to reduce ris&. Answer: "*+ !iff: 1 "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: Anal%tical "hin&ing
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0) -hich of the following is outlined in the tet as reasonBs) wh% (an% people do not have an ade=uate financial plan9 A) For (ost people it is easier to spend than save. $) #rocrastination can affect ever%one. C) /an% of us lac& the proper &nowledge. !) "here is never enough ti(e for organiing and planning. ) All All of the above are co((on ecuses for not planning. Answer: !iff: "opic: "o pic: Financial #lanning AACS$: *eflective "hin&ing ) "he concept of diversification is illustrated b% the old sa%ing A) ESell eggs high and bu% the( low.E $) E!on6t put all %our eggs in one bas&et.E C) EGeep all %our eggs in one bas&et.E !) ESeveral bas&ets of eggs are better than one.E Answer: $ !iff: ' "opic: !iversification AACS$: Anal%tical "hin&ing 4) Chapter 1 discusses 13 principles that for( the foundation found ation of personal finance. "he principle stating that a person can epect to earn additional return for increasing his or her invest(ent ris& is the @@@@@@@@ principle. A) Eris& and return go hand in handE $) E(ind ga(es, financial personalit%, personalit%, and %our (one%E C) Enothing happens without a planE !) Ethe best protection is &nowledgeE Answer: A !iff: ' "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents 8) "he concept that e(phasies that people peop le should not put all their eggs in one bas&et is A) the ti(e di(ension of investing. $) the curse of co(petitive invest(ent (ar&ets. C) diversification reduces ris&. !) the far(ers analog%. ) li=uidit% is first. Answer: C !iff: ' "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents
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;) -hat piece of advice (ight %ou give to so(eone for who( the act of saving is an afterthought9 A) #a% %ourself first. $) /one% isn6t ever%thing. C) !on6t put all %our eggs in one o ne bas&et. !) Mone of the above. Answer: A !iff: ' "opic: "o pic: #rinciple 13: Kust Kust do it AACS$: *eflective "hin&ing <) Chapter 1 discusses 13 principles that for( the foundation found ation of personal finance. "he principle that considers the value of co(pound interest is the @@@@@@@@ principle. A) all ris& is not e=ual $) pa% %ourself first C) co(petitive inflation adust(ent !) ti(e value of (one% ) none of the above Answer: ! !iff: ' "opic: "o pic: #rinciple : "he ti(evalueof(one% AACS$: Anal%tical "hin&ing 13) Chapter 1 discusses 13 principles that for( the foundation foun dation of personal finance. "he principle that considers the i(portance of insurance is the @@@@@@@@ @@@ @@@@@ principle. A) agenc% proble( H beware the sales pitch $) all ris& is not e=ual C) ti(e value of (one% !) protect %ourself against (aor catastrophes ) none of the above Answer: ! !iff: ' "opic: "o pic: #rinciple 8: #rotect %ourself %ourself against (aor catastrophes catastrophes AACS$: Anal%tical "hin&ing 11) /an% people who signed up for adustablerate (ortgages during the subpri(e (ortgage debacle were no longer able ab le to afford their pa%(ents. /an% of these people were (isled b% their lenders. -hich financial principle fro( Chapter 1 (ost applies9 A) "he best protection is &nowledge. $) /ind ga(es, financial personalit%, and %our (one% C) Stuff happens, or the i(portance of li=uidit%. !) "he ti(e value of (one% Answer: A !iff: "opic: "o pic: #rinciple 1: "he best best protection is &nowledge AACS$: Anal%tical "hin&ing '1 Cop%right 2 '314 #earson ducation, 5nc.
1') 5n Chapter 1, #rinciple espouses espo uses the ti(e value of (one%. -h% is this principle so i(portant to financial planning9 A) "he principle allows us to deter(ine how (uch (one% we will need to achieve our o ur future goals. $) "he principle shows us how inflation i(pacts our (one% over ti(e. C) "he principle helps us deter(ine our savings needs toda%, toda %, in order to (eet our future retire(ent goals. !) "he principle shows us how i(portant ti(e and interest rates are to the accu(ulation of wealth. ) All of the above. Answer: !iff: "opic: "o pic: #rinciple : "he ti(evalueof(one% AACS$: Anal%tical "hin&ing 1) -ithout recogniing @@@@@@@@ it is i(possible to understand co(pound interest, which allows invest(ents to grow over ti(e. A) that taes affect personal finance decisions $) the ti(e value of (one% C) the i(portance of li=uidit% !) that ris& and return go hand in hand Answer: $ !iff: ' "opic: "o pic: #rinciple : "he ti(evalueof(one% AACS$: Anal%tical "hin&ing 10) 5f li=uid funds are not available, an unepected need, such as a ob loss or inur% (a% force %ou to A) cash in a longerter( invest(ent. $) borrow (one% fast. C) ta&e on unepected debt repa%(ents. !) all of the above. Answer: ! !iff: "opic: "o pic: #rinciple : Stuff happens, or the i(portance of li=uidit% li=uidit% AACS$: Anal%tical "hin&ing
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1) /ai&o lost her ob and she was forced to sell a rental propert% because she did not have other funds Bli=uid, e(ergenc%, etc) available to (eet her financial obligations. -hat financial principle best applies to this situation9 situation9 A) "he ti(e value of (one% $) -aste -aste not, want w ant notHs(art spending (atters. C) /ind ga(es, financial personalit%, and %our (one% !) Stuff happens, the i(portance of li=uidit%. Answer: ! !iff: "opic: "o pic: #rinciple : Stuff happens, or the i(portance of li=uidit% li=uidit% AACS$: Anal%tical "hin&ing 14) -hat aspect of financial planning (ight %ou discuss with a friend who bu%s fanc% coffee drin&s twice a da%, visits the (all at least once a wee& for recreational shopping, and prefers i(pulse bu%ing to carefull% researched purchasing9 A) Kust do it. $) Mothing happens without a plan. C) /ind ga(es, financial personalit%, and %our (one% !) -aste -aste not, want notHs(art spending (atters. Answer: ! !iff: ' "opic: "o pic: #rinciple 4: -aste -aste not, want not, s(art spending (atters (atters AACS$: *eflective "hin&ing 18) -hich of the following falls under the categor% of o f (ind ga(es, financial personalit%, and %our (one%9 A) "he sun& cost effect $) /ental accounting C) Diewing Diewing %our ta refund as E(ad (one%E !) All of the above Answer: ! !iff: ' "opic: "o pic: #rinciple <: /ind ga(es, ga(es, %our personalit%, personalit%, and %our (one% AACS$: *eflective "hin&ing
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1;) Leticia is twent%two %ears old and she has all of her savings in a Certificate of !eposit BC!) at the ban& that currentl% pa%s an annual 1. percent %ield. "he account is protected b% the F!5C so it is virtuall% ris& free. She hopes to use her savings for a down pa%(ent on a new house in ten %ears. 5nflation in house prices in her area has averaged 0 percent per %ear. -hat financial principle does she need to pa% better attention to9 A) Mothing happens without a plan. $) -aste -aste not, want not, s(art spending (atters. C) *is& and return go hand in hand. !) All of the above are correct. Answer: C !iff: "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents 1<) Charlie is sit%four %ears old and is loo&ing forward to his retire(ent net %ear. >e currentl% has all of his 031B&) retire(ent (one% invested in the stoc& (ar&et. -hat financial principle fro( Chapter 1 does he need to understand better9 A) Mothing happens without a plan. $) Gnowledge is the best protection. C) Stuff happens, the i(portance of li=uidit%. !) *is& and return go hand in hand. Answer: ! !iff: "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents '3) 5n '33;, the $ear Stearns Co(pan% collapsed could not be b e saved and was sold to K# /organ Chase for 13 per share, a price far below its precrisis 'wee& high of 1.'3 per share. #rior to the collapse, (an% of the co(pan%6s e(plo%ees had all of their retire(ent (one% invested onl% in $ear Stearns co((on stoc&. "his was a ver% ris&% financial strateg% for ust such a reason: -hat if the co(pan% dissolves9 -hat financial principle fro( Chapter 1 did the% need to understand better9 A) *is& and return go hand in hand. $) Mothing happens without a plan. C) "he ti(e value of (one% !) Stuff happens, the i(portance of li=uidit%. Answer: A !iff: "opic: "o pic: #rinciple ;: *is& and return return go hand in hand AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents
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'1) /atthew bought a used car last (onth for ',033. >e ust found out he needs a new trans(ission that will cost ',033 to install. >e is as&ing %ou for advice as to what he should do. -hat financial principle would %ou use to base %our advice on9 A) -aste -aste not, want not, n ot, s(art spending (atters. $) /ind ga(es, financial personalit%, and %our (one% C) #rotect %ourself fro( (aor catastrophes. !) Mone of the above would be correct. Answer: $ !iff: "opic: "o pic: #rinciple <: /ind ga(es, ga(es, %our personalit%, personalit%, and %our (one% AACS$: *eflective "hin&ing '') Kessica is ver% proud of herself for having ,333 in her savings account that pa%s 0 percent interest. She currentl% has a balance of ',33 on her credit card account that charges '1 percent interest. Kessica thin&s she is (a&ing a wise financial decision b% &eep ing her (one% in her savings account instead of pa%ing off her credit card balance. -hat financial principle fro( Chapter 1 would %ou use to give her good advice9 A) /ind ga(es, financial personalit%, personalit%, and %our (one% $) "he ti(e value of (one% C) "aes affect personal financial decisions. !) $oth A and C Answer: ! !iff: "opic: "o pic: #rinciple <: /ind ga(es, ga(es, %our personalit%, personalit%, and %our (one% AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents ') -hich of the following adheres to the financial principle Eust do it9E A) "he a(ount %ou can spend is what6s left after %ou put aside %our savings. $) #a% %ourself last. C) 5t6s (uch easier to save than to spend. !) All of the above Answer: A !iff: "opic: "o pic: #rinciple 13: Kust Kust do it AACS$: *eflective "hin&ing '0) A solid understanding of personal finance will A) enable %ou to protect %ourself fro( an inco(petent invest(ent advisor. $) allow %ou to ta&e advantage of changes in the econo(%. C) give %ou the abilit% to (a&e intelligent invest(ents. !) help %ou understand the i(portance of planning for %our financial future. ) all of the above. Answer: !iff: "opic: "o pic: #rinciple 1: "he best best protection is &nowledge AACS$: *eflective "hin&ing
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') List the ten principles of personal finance. Answer: #rinciple 1: "he best protection is &nowledge. #rinciple ': Mothing happens without a plan. #rinciple : "he ti(e value of (one% #rinciple 0: "aes affect personal finance decisions. #rinciple : Stuff happens, or o r the i(portance of li=uidit%. li=uidit%. #rinciple 4: -aste not, want notHs(art spending (atters. #rinciple 8: #rotect %ourself against (aor catastrophes. #rinciple ;: *is& and return go hand in hand. #rinciple <: /ind ga(es, %our financial personalit%, and %our (one% #rinciple 13: Kust do itI !iff: "opic: "o pic: "en "en #rinciples of #ersonal Finance AACS$: !iverse and /ulticultural /ulticultural -or& -or& nviron(ents nviron(ents
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