FIN 2010 OU CHAPTER 1 REVIEW QUESTIONS
WITH 100% CORRECT ANSWERS
T/F
Inflation is a rise in the general level of prices and it reduces the buying power of the
dollar.
TRUE
T/F
Opportunity costs refer to money already spent.
FALSE
An opportunity cost is what a person gives up when a choice is made
A formalized report that summarizes your current financial situation, analyzes your
financial needs, and recommends future financial activities is a(n):
a) Insurance prospectus.
b) Financial plan.
c) Budget.
d) Investment forecast.
e) Statement.
b) financial plan
The major function of personal financial planning is to:
a) Reduce taxes.
b) Increase savings.
c) Achieve personal economic satisfaction.
d) Improve your credit rating.
e) Obtain adequate insurance protection.
c) Achieve personal economic satisfaction
An advantage of effective personal financial planning is:
a) The use of low-interest savings
b) Increased impulse spending
c) Increased control of financial affairs
d) More credit card debt
e) Less monitoring of investments
c) Increased control of financial affairs
Jim Johnson was laid off from his job two months ago. He just received an offer for a
position that pays 3/4 the salary of his old job. Why should he set up a financial plan?
a) To increase the effectiveness of obtaining, using, and protecting his financial resources.
, b) To decrease control of his financial affairs regarding debt.
c) To accept the loss of freedom from financial worries due to his new position.
d) To learn how to manage depending more on others.
e) To find out why he was laid off.
a) To increase the effectiveness of obtaining, using, and protecting his financial resources.
The consumer price index measures:
a) The prices of goods and services in the United States
b) The prices of goods and services in Bolivia
c) The average change in prices of goods and services of urban consumers
d) The change in prices of goods and services around the world
e) None of the above
c) The average change in prices of goods and services of urban consumers
The Rule of 72 is:
a) A tool to determine the number of years until retirement for an employee
b) Used to estimate how fast prices will double using a given annual inflation rate
c) The legal code for requiring companies to provide a match on retirement savings
d) Used to calculate interest rates for savings
e) The number of steps required to complete a financial plan
b) Used to estimate how fast prices will double using a given annual inflation rate
Who is less likely to be harmed by inflation?
a) Retired people
b) Lenders
c) Borrowers
d) Fixed income consumers
e) Financial regulators
c) Borrowers
Which of the following would increase the interest rate for a loan?
a) Poor credit rating
b) Higher down payment
c) Expected lower inflation
d) Lower consumer prices
e) Short time to maturity
a) Poor credit rating
Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000
in credit card debt. He usually makes minimum payments on his debt and he has been late
with three payments in the last year. He wants to buy a new car but was told that his
interest rate on a loan would be very high. What is the most likely reason this might be so?
a) General interest rates are very low
WITH 100% CORRECT ANSWERS
T/F
Inflation is a rise in the general level of prices and it reduces the buying power of the
dollar.
TRUE
T/F
Opportunity costs refer to money already spent.
FALSE
An opportunity cost is what a person gives up when a choice is made
A formalized report that summarizes your current financial situation, analyzes your
financial needs, and recommends future financial activities is a(n):
a) Insurance prospectus.
b) Financial plan.
c) Budget.
d) Investment forecast.
e) Statement.
b) financial plan
The major function of personal financial planning is to:
a) Reduce taxes.
b) Increase savings.
c) Achieve personal economic satisfaction.
d) Improve your credit rating.
e) Obtain adequate insurance protection.
c) Achieve personal economic satisfaction
An advantage of effective personal financial planning is:
a) The use of low-interest savings
b) Increased impulse spending
c) Increased control of financial affairs
d) More credit card debt
e) Less monitoring of investments
c) Increased control of financial affairs
Jim Johnson was laid off from his job two months ago. He just received an offer for a
position that pays 3/4 the salary of his old job. Why should he set up a financial plan?
a) To increase the effectiveness of obtaining, using, and protecting his financial resources.
, b) To decrease control of his financial affairs regarding debt.
c) To accept the loss of freedom from financial worries due to his new position.
d) To learn how to manage depending more on others.
e) To find out why he was laid off.
a) To increase the effectiveness of obtaining, using, and protecting his financial resources.
The consumer price index measures:
a) The prices of goods and services in the United States
b) The prices of goods and services in Bolivia
c) The average change in prices of goods and services of urban consumers
d) The change in prices of goods and services around the world
e) None of the above
c) The average change in prices of goods and services of urban consumers
The Rule of 72 is:
a) A tool to determine the number of years until retirement for an employee
b) Used to estimate how fast prices will double using a given annual inflation rate
c) The legal code for requiring companies to provide a match on retirement savings
d) Used to calculate interest rates for savings
e) The number of steps required to complete a financial plan
b) Used to estimate how fast prices will double using a given annual inflation rate
Who is less likely to be harmed by inflation?
a) Retired people
b) Lenders
c) Borrowers
d) Fixed income consumers
e) Financial regulators
c) Borrowers
Which of the following would increase the interest rate for a loan?
a) Poor credit rating
b) Higher down payment
c) Expected lower inflation
d) Lower consumer prices
e) Short time to maturity
a) Poor credit rating
Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000
in credit card debt. He usually makes minimum payments on his debt and he has been late
with three payments in the last year. He wants to buy a new car but was told that his
interest rate on a loan would be very high. What is the most likely reason this might be so?
a) General interest rates are very low
