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Chapter 4-Financial Decisions and Planning

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 
 
Use Melinda’s Budget to answer questions 1-4.
Melinda has graduated from college and has her first job. She has created a budget to help organize her finances and to begin to pay back her student loans.
Melinda’s Monthly Budget
Income
 
$1,945.00
Savings
$450.00
 
Expenses:
  
   Apartment Rent
$650.00
 
   Cell Phone Bill
$65.00
 
   Student Loans
$350.00
 
   Gas
$756.00
 
   Car Insurance
$50.00
 
   Renter’s Insurance
$20.00
 
   Groceries
$125.00
 
   Personal Care/Laundry
$160.00
 
Total Expenses
 
XXXX
Budget Balance
XXXX
 

 1. 
Melinda “pays herself first” each month. What does that mean?
a.
conscious effort to spend less each day
c.
a deduction taken automatically out of your paycheck
b.
setting aside a fixed amount for savings before paying bills
d.
decreasing savings to establish a sound financial future
 

 2. 
Which of the following of Melinda’s expenses would be classified as a variable expense?
a.
apartment rent
c.
car payment
b.
grocery bills
d.
renter’s insurance
 

 3. 
Which of the following of Melinda’s expenses would be classified as a fixed expense?
a.
apartment rent
c.
cell phone bill
b.
grocery bills
d.
gas purchases
 

 4. 
What are Melinda’s total expenses for the month?
a.
$1,560.00
c.
$2,176
b.
$1,750.00
d.
$2,626
 

 5. 
Logan has priced laptops at the local stores, and has found that he has saved enough money to purchase one, but has decided to wait to make a purchase in hopes of getting a better deal.  What trade-off has he made?
a.
trade decision
c.
opportunity cost
b.
economic choice
d.
net worth
 

 6. 
Ryan and Liz are newlyweds. They have decided that they would like to pay off their car loan by next year. What goal classification does this meet?
a.
opportunity goals
c.
long term goals
b.
short term goals
d.
attainable goals
 

 7. 
Olivia has made a list of items that she wants to purchase. This list includes clothing, a house, groceries, and an iPad. Which of the items would be most likely to be considered a want?
a.
The clothing.
c.
The iPad.
b.
The house.
d.
The groceries.
 

 8. 
Lisa received an email from her bank requesting her social security number. She doesn’t believe that this is a legitimate email. What has she experienced?
a.
benchmark
c.
tradeoff
b.
phishing
d.
opportunity cost
 

 9. 
Carmen owns a home, a car, an iPad and a boat. Which of her assets is an “appreciating” asset?
a.
The car.
c.
The iPad.
b.
The house.
d.
The boat.
 

 10. 
Molly has created a set of standards to measure her progress in reaching her goals. What has she created?
a.
assets
c.
variance
b.
benchmarks
d.
liability
 

 11. 
Laura Martinez is a high school junior who works part-time at a sporting goods store. She is saving money for college, and hopes to save enough money to attend junior college in two years. What type of goal has Laura set for herself?
a.
short term goal
c.
medium term goal
b.
long term goal
d.
durable goal
 
 
Use the scenario on Jodi to answer questions 12-14.

Jodi Jones is a 25-year-old accountant.  Jodi’s dream is to retire by the time she is 55 years old and travel. She has calculated that in order to retire early she will need to have $800,000 in assets. Each year she prepares a Net Worth Statement to determine how she is progressing towards her retirement goal. Answer the following questions using Jodi’s balance sheet.

Jodi’s Financial Records as of June 30, 2017
Checking Account$9,800Savings Account$20,000
Student Loans$5,000House Loan$85,000
Market Value of Car$11,000US Savings Bonds$30,000
Car loan$4,000Credit Card Debt$3,000
Market Value of House$150,000Retirement Account$45,000
 

 12. 
Jodi would like to calculate her liabilities, so that she knows what she owes. What is the amount of Jodi’s liabilities?
a.
$88,000
c.
$97,000
b.
$92,000
d.
$127,000
 

 13. 
Jodi would like to calculate her assets so that she knows the value of her assets. What is the amount of Jodi’s assets?
a.
$200,800
c.
$236,000
b.
$211,000
d.
$265,800
 

 14. 
What is Jodi’s net worth?
a.
$97,000
c.
$148,800
b.
$137,800
d.
$168,800
 

 15. 
Ty has made a list of items that he wants to purchase. This list includes a house, a trip to England, a flat screen television, and laptop. Which of the items would most likely to be considered a need?
a.
The trip to England.
c.
The house.
b.
The laptop.
d.
The television.
 

 16. 
Kyle owns a car, a house, a mutual fund, and a savings account. Which of his assets are considered to be a “depreciating” asset?
a.
The car.
c.
The mutual fund.
b.
The house.
d.
The savings account.
 

 17. 
Emmanuel wants to have his student loans paid off within 4 years. What type of goal has he set?
a.
short term goal
c.
medium term goal
b.
long term goal
d.
durable goal
 

 18. 
Louisa has a car loan, a checking account, a savings account, and a house. Which of those items is considered a liability?
a.
The checking account.
c.
The house.
b.
The savings account.
d.
The car loan.
 

 19. 
Lacey accesses her banking information online. She checks her bank balances and pays bills online. She has discovered that someone has used her personal information to take out a loan to purchase a house and to withdraw money from her savings account. What has Lacey experienced?
a.
She has experience phishing.
c.
She has experienced an opportunity cost.
b.
She has experienced a tradeoff.
d.
She has experienced identity theft.
 

 20. 
The Simpson’s have developed a plan on how to spend, save and invest their money to achieve their goals. What type of plan have they created?
a.
tradeoff
c.
financial
b.
opportunity cost
d.
cash outflows
 

 21. 
Walker has just graduated from high school, and will be moving into an apartment near the community college he will be attending part-time.  His parents will provide some financial assistance, but he will need to have a full-time job in order to make ends meet.  His parents suggest that he create a budget.  What might be a reason Walker wouldn’t want to create a budget?
a.
It would help him spend money uncontrollably.
c.
It would help him meet his financial goals.
b.
It would help him manage his money.
d.
It would help him plan how to spend his money.
 
 
Use the scenario on Amber to answer questions 22-25.

Amber keeps her financial records on her computer. She uses a spreadsheet software to create a budget and keep her checkbook register. She also stores her federal income tax forms electronically. Her financial records contain her social security number, her birthdate and her checking and savings account numbers.
 

 22. 
Which of the following is NOT true about Amber’s electronic filing system?
a.
She can access information quickly.
c.
She needs to purchase a cabinet to store her information.
b.
She can update her information easily.
d.
She can protect her files with passwords.
 

 23. 
How can Amber best protect her electronic financial records if she allows other people to use her computer?
a.
She should connect to the Internet without security software.
c.
She should protect her files with passwords.
b.
She should let other people use her computer.
d.
She should use free Wi-Fi.
 

 24. 
Amber’s friend Keith has suggested that she convert her data into a coded form when sending it over the Internet with software. What is this called?
a.
encryption
c.
phishing
b.
variance
d.
hacking
 

 25. 
How can Amber best protect her electronic financial records when she access the Internet with the computer that she stores her financial records on?
a.
She should install a keylogger.
c.
She should install a virus.
b.
She should install a firewall.
d.
She should install software sent in an email.
 



 
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