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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