Marshall University MIS 310 Fall 2013 Chapter 4-6 Quiz AnswersPersonal Finance Basics and the Time Value of Money

Marshall University MIS 310 Fall 2013Chapter 4-6 Quiz AnswersPersonal Finance Basics and the
Time Value of Money

1.Who is most likely to benefit from
inflation?
A. retired people
B. lenders
C. borrowers
D. low-income consumers
E. government

2.A major activity in the planning component of
financial planning is:
A. selecting insurance coverage.
B. evaluating investment alternatives.
C. gaining occupational training and experience.
D. allocating current resources for spending.
E. establishing a line of credit.

3.If a person deposited $50 a month for 6 years earning
8 percent, this would involve what type of computation?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits

4.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?
A. 30 years
B. 24 years
C. 18 years
D. 12 years
E. 6 years

5.Which of the following is an example of opportunity
cost?
A. renting an apartment near school
B. saving money instead of taking a vacation
C. setting aside money for paying income tax
D. purchasing automobile insurance
E. using a personal computer for financial planning

6.John Gleason is interested in purchasing a 46″
rear projection TV for his living room. John knows that right now the TV will
cost approximately $1500. John is not sure he can afford this TV right now but
is worried that if he waits, the cost of the TV will rise to $1800. Which type
of risk is John worried about?
A. Inflation risk
B. Interest rate risk
C. Income risk
D. Personal risk
E. Liquidity risk

7.John Garic has just moved into a new house and
needs a lawn mower since he has always lived in apartments and now he has a
lawn to mow. What type of goal would this be for John?
A. Consumable-products goal
B. Durable-products goal
C. Intangible goal
D. Intermediate goal
E. Long term goal

Money Management Strategy:
Financial Statements and Budgeting

8.Stock and bond reports would be an example of a(n):
A. investment
B. insurance
C. estate planning
D. tax
E. consumer purchase

9.Ben Chase needs to pay off some of his debts over
the next few months. Which item on his balance sheet would help him decide what
amounts are due in the near future?
A. The budget variance
B. Investment assets
C. Long-term liabilities
D. Current assets
E. Current liabilities

10.Which of the following situations is a person who
could be insolvent?
A. Assets $56,000; annual expenses $60,000
B. Assets $78,000; net worth $22,000
C. Liabilities $45,000; net worth $6,000
D. Assets $40,000; liabilities $45,000
E. Annual cash inflows $45,000; liabilities $50,000

11.Payments that do not vary from month to month are
____________ expenses.
A. fixed
B. current
C. variable
D. luxury
E. budgeted

12.Nick Boss has a savings account with $550 in it.
He knows that he can withdraw this money from his savings account whenever he
wishes. This would be an example of:
A. Money management
B. An opportunity cost
C. A balance sheet
D. A liquid asset
E. Net worth

13.Katherine Kocher has determined the following
information about her own financial situation. Her checking account is worth
$850 and her savings account is worth $1,200. She owns her own home that has a
market value of $98,000. She has furniture and appliances worth $12,000 and a
home computer and laptop worth $3,300. She has a car worth $12,500. She has
recently purchased a 2 year certificate of deposit worth $5,500 and she has a
retirement account worth $38,550. What is the value of her liquid assets?
A. $2,050
B. $98,000
C. $27,800
D. $44,050
E. $171,900

14.Jamie McFarland has determined that the value of
her liquid assets is $4,500, the value of her real estate is $128,000, the
value of her personal possessions is $62,000 and the value of her investment
assets is $73,000. She has also determined the value of her current liabilities
is $7,500 and the value of her long term liabilities is $98,000. What is the
total value of her assets?
A. $267,500
B. $105,500
C. $162,000
D. $205,500
E. None of the choices

15.A savings amount of $5,000 on deposit for 8 years
at 4 percent interest (compounded annually) would earn about
A. $ 200
B. $ 850
C. $1,370
D. $1,600
E. $1,840

Planning your tax strategy

16.Taxable income is used to compute a
person’s:
A. exemptions.
B. income tax.
C. deductions.
D. capital gains.
E. exclusions.

17.A taxpayer with a taxable income of $47,856 and a
total tax bill of $5,889 would have an average tax rate of ____ percent.
A. 8.6
B. 10.3
C. 12.3
D. 14.2
E. 16.7

18.Reductions from gross income for such items as
individual retirement account contributions and alimony payments will result
in:
A. adjusted gross income.
B. taxable income.
C. earned income.
D. passive income.
E. total exclusions.

19.Michele Barbour is considering an additional
charitable contribution of $2,000 to a tax-deductible charity, bringing her
total itemized deductions to $16,000. If Michelle is in a 28 percent tax
bracket, and is not subject to a phase out of deductions, how much will this
$2,000 contribution reduce her taxes?
A. nothing
B. $560
C. $1,600
D. $2,000
E. $4,480

20.The “head of household” filing status is
for people who are:
A. recently divorced.
B. the surviving spouse.
C. not living with a spouse and have dependent children.
D. married but only one spouse has income.
E. married and each spouse makes about the same income.

21.A person with a total tax liability of $4,350 and
withholding of federal taxes of $3,975 would:
A. receive a refund of $3,975.
B. owe $4,350.
C. owe $375.
D. receive a refund of $4,350.
E. receive a refund of $375.

22.An IRA, Keogh plan, and 401(k) plan are examples
of:
A. tax-exempt retirement plans.
B. tax-deferred retirement plans.
C. capital gains.
D. self-employment insurance programs.
E. job-related expenses that are tax deductible.

23.Tim Bridges purchases a bass fishing boat in the
state of Oklahoma. The state imposes a 3.25% tax on the value of this purchase.
What type of tax is this most likely to be?
A. General sales tax
B. Excise tax
C. Personal property tax
D. Income tax
E. Estate tax

24.Kim Ye is single and earns $40,000 in taxable
income. He uses the following tax rate schedule to calculate the taxes he owes.

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Calculate the dollar amount of estimated taxes that Kim
owes.
A. $2,737.50
B. $6,747.50
C. $10,000.00
D. $17,587.50

25.Randal Ice has adjusted gross income of $32,000.
He has medical expenses for the year of $6000. How much of these expenses can
he deduct from adjusted gross income?
A. $0
B. $2400
C. $3600
D. $6000

Choosing a Source of Credit: The
Costs of Credit Alternatives

26.You can often obtain medium-priced loans
from:
A. parents or family members.
B. American Express.
C. Diners Club.
D. finance companies.
E. commercial banks and credit unions.

27.If you borrow $100
at 10 percent simple annual interest and repay it in one lump sum at the end of
one year, you will have to pay:
A. $100
B. $105
C. $110
D. $115
E. $120

28.Which type of
credit insurance repays your debt in the event of a loss of income due to
illness or injury?
A. credit life insurance
B. credit accident and health insurance
C. credit property insurance
D. credit casualty insurance

29.Frank Wert wants to
get a lower interest rate on his loan for the purchase of a new boat. He uses
the boat as collateral for the loan. In which way is Frank reducing his
lender’s risk?
A. He is sharing the interest rate risk with his lender
B. He is pledging valuable assets that can be seized if the loan is
not repaid
C. He is taking a larger stake in the asset he is purchasing
D. He is repaying the loan over a faster period of time
E. None of the choices

30.Shelly Stumbaugh
gets a loan for $3000 with an annual interest rate of 6%. Shelly repays the
loan in 12 monthly payments of $258 per month. The total amount of interest she
pays is $96. Under the rule of 78’s, what is the amount of interest included in
her first payment?
A. $16.00
B. $14.77
C. $8.00
D. $1.23
E. None of the choices

31. If Edward received a $1,600 raise to
increase his annual salary from $37,000 to $38,600 during a year with an annual
inflation of 4%, what would his personal increase be in nominal terms?
A. .3%
B. 4.15%
C. 4.3%
D. 6%

32. Using the same information as problem 93,
what is his real personal increase?
A. .3%
B. 4.15%
C. 4.3%
D. 6%

True / False Questions

33.Taxes
are only considered as financial planning activities in April. 

34.A state
may impose a personal property tax. 

35. Real-estate property taxes are a major
source of revenue for local governments. 

36.A
general sales tax is also referred to as an excise tax. 

37.A tax on
the value of automobiles, boats, or furniture is referred to as a personal
property tax. 

38. Taxable income is the total earnings of a
person. 

39.Exemptions
are deductions for yourself, your spouse and qualified dependents that you can
deduct from adjusted gross income.

40.Opportunity
costs are only associated with money management decisions involving long-term
financial security.

41.A budget
is a specific plan of how a person or family will spend their money.

42.A
personal balance sheet reports your income and expenses. 

43.A
person’s net worth is the difference between the value of the items owned and
the amounts owed to others.

44.Furniture,
jewelry, and an automobile are examples of liquid assets. 

45.Current
liabilities are amounts that must be paid within a short period of time,
usually less than a year. 

46.A
personal cash flow statement presents income and outflows of cash for a given time
period, such as a month. 

47.If
expenses for a month are greater than income, an increase in net worth will
result. 

48. Increased demand for a product or service
will usually result in lower prices for the item. 

49. Inflation reduces the buying power of
money. 

50. When prices are increasing at a rate of 6
percent, the cost of products would double in about 12 years. 

51. A decrease in the demand for a product or
service may result in a decrease in wages for people producing that item. 

52. A financial plan is another name for a
budget. 

53. Short-term goals are usually achieved
within the next year or so. 

54. Opportunity costs refer to time, money, and
other resources that are given up when a decision is made. 

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

56. The financial planning process is complete
once you implement your financial plan. 

57.Higher prices are likely to result
from:
A. lower demand by consumers.
B. increased production by business.
C. lower interest rates.
D. increased spending by consumers without
increased production.
E. an increase in the supply of a product.

58.With an inflation rate of 9
percent, prices would double in about ___________ years.
A. 4
B. 6
C. 8
D. 10
E. 12
59.Increased
consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. lower interest rates.
E. higher employment levels.

60.The main
economic influence that determines prices is:
A. the stock market.
B. interest rates.
C. employment.
D. government spending.
E. supply and demand.

61. As Jean Tyler plans to set aside funds for
her young children’s college education, she is setting a(n) ____________
goal.
A. intermediate
B. long-term
C. short-term
D. intangible
E. durable

62. Brad Opper has a goal of “saving
$50 a month for vacation.” Brad’s goal lacks:
A. measurable terms.
B. a realistic perspective.
C. specific terms.
D. the type of action to be taken.
E. a time frame.

63. Opportunity cost refers to:
A. money needed for major consumer
purchases.
B. what a person gives up by making a choice.
C. the amount paid for taxes when a
purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial
decisions.

64. Which type of computation would a
person use to determine current value of a desired amount for the future?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits

65. 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

Chapter 4

Excise Tax: 
Estate Tax: 
Inheritance Tax: 
Taxable Income: 
Earned Income: 
Investment Income: 
Passive Income: 
Exclusion: 
Tax-Exempt Income: 
Tax-Deferred Income: 
Adjusted Gross Income (AGI): 
Tax Shelter:
Tax Deduction: 
Standard Deduction: 
Itemized Deductions: 
Exemption: 
Marginal Tax Rate: 
Average Tax Rate: 
Tax
Credit:
Tax Audit: 
Tax
Avoidance: 
Tax
Evasion:
Capital Gains: 
Tax-Planning
Strategies:
·
Tax-Exempt Investments:
·
Interest income from municipal bonds is not subject
to federal income taxes
·
Put money in tax-deferred investments
–
Series EE U.S. Treasury bonds interest is
exempt if used for tuition
–
Tax-deferred annuities
–
Take advantage of tax-deferred retirement plans
§ IRA,
401(k) plans
§ Establish
a Keogh plan if self-employed
·
Long-term capital gains on the sale of a home
are excluded from taxes up to a certain amount
·
Self-Employment – tax advantages, such as
deducting health/life insurance costs, but have to pay self-employment tax
(Social Security)
·
Children’s investments and income shifting
(<$1500) · Education IRA savings - earnings are tax free · Retirement Planning – Traditional IRA – Roth IRA – Keogh Plan Chapter 5 Trust:  ·  Asset Management Account:  Automatic Teller Machine (ATM):  Debit Card:  Commercial Bank: Savings and Loan Association (S&L): Mutual Savings Bank:  Credit Union:  Money Market Fund: