College of Business Administration Savannah State University Personal Finance (BUSA 3000) Quiz 1 Fall 2011 Dr. William A. Dowling.

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1 College of Business Administration Savannah State University Personal Finance (BUSA 3000) Quiz 1 Fall 2011 Dr. William A. Dowling Exam Key Instructions: You are to answer each of the following. If the questions require some calculation(s), make sure that you sufficiently justify your answers in the space provided as credit will only be awarded when the answer is appropriately justified. Additionally, your justification must be legible and arranged in an orderly fashion. Good Luck.. 1. What is the present value of $8,000 to be paid at the end of three years if the correct risk adjusted interest rate is 11%? 2. What is the present value of $1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%?

2 College of Business Administration Savannah State University Personal Finance (BUSA 3000) Quiz 1 Fall 2011 Dr. William A. Dowling Exam Key Instructions: You are to answer each of the following. If the questions require some calculation(s), make sure that you sufficiently justify your answers in the space provided as credit will only be awarded when the answer is appropriately justified. Additionally, your justification must be legible and arranged in an orderly fashion. Good Luck.. 1. What is the present value of $8,000 to be paid at the end of three years if the correct risk adjusted interest rate is 11%? 2. What is the present value of $1,000 to be paid at the end of 5 years if the correct risk adjusted interest rate is 8%?

3 3. What is the present value of $6,500 to be paid at the end of 8 years if the correct risk adjusted interest rate is 10%? 4. What is the present value of $717 to be paid at the end of 2 years if the correct risk adjusted interest rate is 9%?

4 5. What is the present value of $53,000 to be paid at the end of 15 years if the correct risk adjusted interest rate is 9%? 6. What is the present value of an annuity that pays 100 per year for 10 years if the required return is 7%?

5 7. What is the present value of $3,500,000 to be paid at the end of 50 years if the correct risk adjusted interest rate is 18%? 8. What is the implied discount rate of a perpetuity that pays $5 and has a present value of $60?

6 9. You invested $1,000 five years ago in Krie Industries stock. If your Krie stock is worth $1,338 today, what is your annual implied rate of return? 10. How much must you set aside today to have $2000 in six years if you earn 12% on your money?

7 11. The amount of money we set aside for future consumption will be determined by a. our level of current wealth. b. how much we currently earn and spend. c. our education level. d. the current needs of our family. e. the cost of life's necessities. 12. A is an example of a real asset. a. stock b. bond c. mutual fund. d. savings account e. stamp collection 13. Family financial goals should be a. very general in nature. b. realistically attainable. c. individually determined. d. set once for a lifetime. e. reserved for retirement planning. 14. The main reason to do personal financial planning is to a. minimize overall costs. b. minimize overall utility. c. assign monetary value to consumption. d. maximize overall utility. e. stabilize overall utility. 15. The most important financial planning for young people concerns a. career. b. insurance. c. investment. d. taxes. e. retirement. 16. Employee benefits may include a. health insurance b. disability insurance c. life insurance d. only a and b above e. a, b, and c above 17. Estate planning involves a. considering how your wealth can be most effectively passed on to heirs. b. payment of all back taxes. c. dissolution of all privately held corporations. d. valuation and auctioning of your valuables. e. planning retirements. 18. The four stages of an economic cycle would not include a. depression. b. expansion. c. recession. d. recovery. e. stagnation. 19. This is a measure of inflation based on changes in the cost of a market basket of consumer goods and services: a. inflation b. consumer price index (CPI) c. purchasing power d. none of these 20. Financial goals should be a. specific. b. attainable. c. prioritized. d. all of these e. none of these 21. The three parts of your balance sheet are a. income, liabilities, balance. b. assets, expenditures, balance. c. assets, liabilities, balance. d. assets, liabilities, net worth. e. income, liabilities, net worth. 22. Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet? a. $200,000 asset and $55,000 liability b. $200,000 asset and $90,000 liability c. $175,000 asset and $55,000 liability d. $175,000 asset and $90,000 liability e. $100,000 asset and $55,000 liability 23. You are solvent if your a. total liabilities exceed total assets. b. total assets exceed total liabilities. c. total assets exceed net worth. d. total liabilities exceed net worth. e. none of these.

8 24. The income and expenditures statement examines your financial a. level. b. performance. c. position. d. assets. e. objectives. 25. You are more likely to achieve your goals when a. your income is high. b. goal dates are inflexible. c. short and long term goals are established separately. d. goals are reassessed and revised periodically. e. one person controls all goals in the household. 26. You would not include on an income and expenditures statement. a. the value of your stock portfolio b. taxes withheld c. utilities paid d. mortgage payments e. charitable payments 27. Mindy and Lou had liquid assets of $10,000 and current debts of $30,000. What is their liquidity ratio? a. 25% b. 33% c. 67% d. 150% e. 300% 28. Dual income families often face a. reduced employee benefit options. b. increased complexity in their money management systems. c. reduced expenditures as a result of the second job. d. reduced taxes due to tax breaks. e. increased time to spend with the family. 29. The average American's is higher. a. home equity b. home mortgage 30. Your level of formal education is a factor that has a considerable effect on your income. a. controllable b. non controllable 31. planning is introduced early in the life cycle. a. Tax b. Liability and insurance 32. During the expansion phase of the business cycle, the unemployment rate will. a. increase b. decrease 33. is the total of all goods and services produced by workers located within the country. a. GDP b. CPI 34. When your assets exceed your liabilities, you are. a. saving b. solvent 35. Your gross income was $32,000; your net income was $25,000; you saved $1,000. Your savings ratio was. a. 3% b. 4% 36. The purpose of the debt service ratio is to show the amount of your income needed to pay your. a. current liabilities b. monthly loan payments 37. Short term goals are usually based on a maximum period of. a. one year b. five years 38. It is most important to balance your budget over a period. a. monthly b. yearly