Southern New Hampshire University

FIN250 - Personal Financial Planning

EXAM 1 questions and answers

1

Preethi plans to buy a house in the next 5 years. At present, she has total savings of $60,000. The median

house price in her state is nearly $100,000.

Which of the following investment options will Preethi most likely benefit from?

Investing $60,000 for 3 years at an interest rate of 10%

Investing $60,000 for 5 years at an interest rate of 10%

Investing $60,000 for 2 years at an interest rate of 13%

Investing $60,000 for 4 years at an interest rate of 12%

RATIONALE

Preethi should invest $60,000 at 10% interest for a period of 5 years. To calculate the most beneficial investment

from these options, we will use the formula to calculate the future value of the invested money at diﬀerent interest

rates and diﬀerent periods.

Suppose we take the values as follows:

PV = $60,000

N = 5

I=10%

By substituting the numbers in the equation, we get

Katie is a freelancer. She is calculating her monthly expenses for the past 6 months and analyzing the diﬀerence

in total expenditure between the months.

Which of the following should Katie use to best display her data?

A frequency table

A Pareto chart

A stacked column chart

A bar chart

RATIONALE

Katie should use a bar chart to visually represent the given data. A bar chart indicates frequency values along the

horizontal axis and categories along the vertical axis. In the bar chart, the month will be represented by a single bar

and its length indicates the expense for that month.

CONCEPT

Data Visualization

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3

Bert is a middle-aged man who has managed to save $80,000. He decides to use this money to pay oﬀ his

debts, which amount to $100,000, immediately, rather than paying the monthly installments.

Assuming that Bert has high risk tolerance because of his age and income, evaluate his decision.

Bert's decision is productive. He can pay oﬀ the remaining debt, in

smaller installments, and begin saving for his retirement.

Bert's decision is not productive. He should invest the money in

lottery tickets and use the rewards to pay oﬀ his debt.

Bert's decision is not productive. Instead, he should invest a portion of

his savings in high-risk investment options and use the returns to

pay oﬀ his debt.

Bert's decision is productive. He can now invest his income to buy

himself assets such as automobiles.

RATIONALE

It is known that the greater the risk, the bigger the return. Bert should use his productivity skills to find a creative and

eﬀective method to invest his savings. Therefore, he should invest a part of his savings in high-risk investments and

use the returns to pay oﬀ his debts.

CONCEPT

Weighing Financial Risk

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4

Melita has a total asset value of $450,000. Her total liabilities are valued at $270,000. However, the value of

her monetary assets is $6,500, and the value of her current liabilities is $5,000.

Using the given information, calculate Melita's net worth, current ratio, and debt ratio.

Melita's net worth is $180,000. Her current ratio is 1.3 and her debt

ratio is 60%.

Melita's net worth is −$1,500. Her current ratio is 1.6 and her debt

ratio is 68%.

Melita's net worth is $1,500. Her current ratio is 0.79 and her debt

ratio is 166%.

Melita's net worth is −$180,000. Her current ratio is 1.66 and her

debt ratio is 62%.

RATIONALE

The formulas that can be used to calculate net worth, current ratio, and debt ratio are as follows:

Net worth = Assets − Liabilities

Net worth = $450,000 − $270,000 = $180,000

Current ratio = Monetary assets / Current liabilities

Current ratio = $6,500 / $5,000 = 1.3

Debt ratio = Total liabilities / Total assets * 100

Debt ratio = ($270,000 / $450,000) * 100 = 60%

CONCEPT

Balance Sheets

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5

Juan creates a budget to track his income and expenses each month. At the end of the year, he has broken

even 6 months of the year and has had a deficit at the end of the other 6 months.

What conclusion can be drawn from this information?

Juan needs to find new sources of income.

Juan has an overall budget deficit for the year.

Juan’s income has been greater than his expenditure through the

year.

Juan’s variable expenses are much greater than his fixed expenses.

RATIONALE

A budget deficit indicates that his expenses exceed his income. Here, he breaks even for 6 months; that is, his

income equaled his expenses. However, for the other 6 months, his expenses exceeded his income. Therefore,

Juan faces an overall budget deficit for the year.

CONCEPT

Budgets

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6

Rita picks up extra shifts at her workplace. The extra hours of work and constant pressure have

significantly impacted her productivity.

Which of the following problem-solving strategies will help Rita achieve her goals?

She should take extended breaks as it will enable her to

concentrate better.

She should constantly snack on high-calorie foods as it provides

added energy.

She should practice some form of physical activity as it helps

achieve mental clarity and focus.

She should take short, frequent breaks and scroll through social

media to keep her alert.

RATIONALE

Stress can hinder an individual's capability to perform eﬀectively in their job. The eﬀects of stress can be reduced

by certain practices such as a 30-minute activity session; taking short, strategic breaks; and understanding one's

body rhythm.

CONCEPT

Setting Financial Goals

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7

Lee spent $5,000 dollars last year on transportation, $3,000 on entertainment, and $8,000 on groceries. He spent

a total of $35,000 overall.

What percentage of Lee's total expenditure was on groceries?

45.71%

4.38%

22.85%

5.38%

RATIONALE

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8

Rose decides to invest her savings of $9,000 in an account that provides a 12% interest rate. However, she will

go ahead with this investment only if her current investment will earn $12,000 at the end of 3 years.

Which common type of TVM calculations will help Rose determine if her current investment will

earn the required returns?

Discounting the present value of $9,000

Discounting the future value of $12,000

Discounting the future value of $9,000

Discounting the present value of $12,000

RATIONALE

Discounting is the process of determining the present value from the amount to be paid or received in the future.

CONCEPT

Time Value of Money

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9

Which of the following is an example of informal networking?

A friend provides you with free accommodation in his house until

you manage to find a job.

You participate in all the team recreational activities at your

workplace.

Your manager helps you move internally to a diﬀerent team based

on your preference.

One of your LinkedIn connections refers you to a suitable job

position in his company.

RATIONALE

Informal networks are the interpersonal relationships you form with family and friends who support and encourage

you to succeed.

CONCEPT

Defining Human Capital

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10

What shortcut should Pablo use to remove data from its original location and move it

temporarily to the clipboard?

Ctrl + C

Ctrl + V

Ctrl + X

Ctrl + Z

RATIONALE

The cut command (Ctrl + X) is used to move data temporarily to the clipboard. Pablo needs to use the cut and

paste commands to move data from one cell to another.

CONCEPT

Spreadsheet Basics

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11

Which of the following is an example of scarcity?

A decrease in the price of a commodity due to surplus in supply

The pandemic causing an insuﬃcient availability of skilled laborers

Spending money on lottery tickets rather than investing it in stock

markets

Choosing to take a leave from work to prepare for an examination

RATIONALE

Scarcity refers to the limitation or the gap between limited resources and excessive wants and needs.

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CONCEPT

Your Financial Journey

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12

Which of the following relates to the concept of interest?

Nina works part-time and obtains $100 at the end of the week.

Carl deposits $100 in a savings account and obtains $140 at the end

of one year.

Steven borrows $100 from a friend and returns the same amount

after a week.

Raj sets aside $100 every month in a safe-deposit box.

RATIONALE

Interest is the price paid for the use of money. Carl deposits $100 in an account and obtains $140. The extra $40 is

the interest paid by the bank for using Carl's money during the year.

CONCEPT

Compound Growth

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