Personal Finance 6th Canadian Edition by Kapoor – Test Bank

1. Personal financial planning has the main goal of:

A. Savings and investing for future needs.
B. Reducing a person’s tax liability.
C. Managing money to achieve personal economic satisfaction. D. Spending to achieve financial objectives.
E. Savings, spending, and borrowing based on current needs.

2. The first step of the financial planning process is to

A. develop financial goals.
B. implement the financial plan.
C. determine your current personal and financial situation. D. evaluate and revise your actions.
E. create a financial plan of action.

3. Opportunity cost refers to:

A. money needed for major consumer purchases.
B. the trade­off of a decision.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.

4. 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.

5. The uncertainty associated with decision making is referred to as:

A. opportunity cost.
B. selection of alternatives. C. financial goals.
D. personal values.
E. risk.

6. Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

A. Inflation risk
B. Interest rate risk C. Income risk
D. Personal risk
E. Liquidity risk

7. The financial planning process concludes with efforts to:

A. develop financial goals.
B. create a financial plan of action.
C. analyze your current personal and financial situation. D. implement the financial plan.
E. revaluate and revise your actions.

8. Changes in income, values, and family situation make it necessary to:

A. develop financial goals
B. implement the financial plan.
C. evaluate and revise your actions.
D. analyze your current personal and financial situation. E. create a financial plan of action.

9. As Jeanne Taillefer plans to set aside funds for her young children’s college education, she is setting a(n) ____________ goal.

A. intermediate B. short term C. long­term D. intangible E. durable

10. ____________ goals relate to personal relationships, health, and education.

A. Short­term
B. Intangible­purchase C. Consumable­product D. Durable­product
E. Intermediate

11. 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 actions.
D. a tangible end.
E. a time frame.

12. Which of the following goals would be the easiest to implement and measure its accomplishment?

A. “Reduce our debt payments.”
B. “Save funds for an annual vacation.”
C. “Save $100 a month to create a $4,000 emergency fund.” D. “Clear credit card debt
E. “Invest $2,000 a year for retirement.”

13. The present value of a future amount will decrease if _________________.

I. the discount rate increases
II. the amount occurs closer in time
III. the compounding frequency increases IV. inflation increases

A. IandIIonly
B. I and III only
C. II and III only D. III and IV only E. I, III and IV only

14. Higher prices are likely to result from:

A. increased spending by consumers. B. increased production by business. C. lower interest rates.
D. lower demand by consumers

E. an increase in the supply of a product.
15. Who is most likely to benefit by inflation?

A. retired people
B. lenders
C. borrowers
D. low­income consumers E. government

16. Higher consumer prices are likely to be accompanied by:

A. lower union wages.
B. lower interest rates.
C. lower production costs. D. higher interest rates.
E. higher exports.

17. Increased consumer spending will usually cause:

A. lower consumer prices.
B. reduced employment levels. C. lower tax revenues.
D. higher employment levels. E. lower interest rates.

18. Higher interest rates can be caused by:

A. a lower money supply.
B. an increase in the money supply.
C. a decrease in consumer borrowing.
D. lower government spending.
E. increased saving and investing by consumers.

19. The changing cost of money is referred to as ____________ risk.

A. interest­rate B. inflation
C. economic D. trade­off

E. personal
20. A risk premium associated with interest rates refers to:

A. higher earnings due to uncertainty. B. lower consumer prices.
C. the opportunity cost of borrowing D. a loan with a short maturity.

E. expected lower inflation.