NPTEL Assign 5 Jan23 Behavioral and Personal Finance

NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur
Behavioral and Personal Finance

Assignment- 5 (Week 5)
TYPE OF QUESTION: MCQ
Number of questions: 10 Total marks: 10 X 2 = 20
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QUESTION 1: (Marks 2)
Noah needs to compute his net worth. He has listed following items he owns and owes (not in a
specific order) –
Jewelry - ₹ 10,000
Tax payment - ₹ 40,000
Rental property - ₹ 5,00,000
Mortgage - ₹ 2,00,000
Retirement investment - ₹ 50,000
Calculate his net worth.
a. ₹ 2,20,000
b. ₹ 3,20,000
c. ₹ 6,80,000
d. ₹ 4,00,000
Correct Answer: b
Detailed Solution: Assets = Jewelry (₹ 10,000) + Retirement investment (₹ 50,000) + Rental

property (₹ 5,00,000) = ₹ 5,60,000
Liabilities = Tax payment (₹ 40,000) + Mortgage (₹ 2,00,000) = ₹ 2,40,000
Net Worth = Assets – Liabilities = ₹ 3,20,000
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Choose the appropriate sequence about the Financial Planning Process- (1. Implementing action
plan, 2. Developing goals, 3. Identifying and Evaluating alternatives, 4. Performance Assessment,
5. Considering risk, personal and economic factors, 6. Determining Current situation, 7. Review
and revise plan).
a. 2 -> 6 -> 5 -> 3 -> 1 -> 4 -> 7

b. 2 -> 6 -> 3 -> 5 -> 1 -> 4 -> 7
c. 6 -> 2 -> 3 -> 5 -> 1 -> 4 -> 7
d. 6 -> 2 -> 5 -> 3 -> 1 -> 4 -> 7
Correct Answer: c
Detailed Solution: Refer to the lecture video.
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Which of the following can be attributed to decrease in liabilities?

a. Paying off mortgage
b. Selling old car
c. Buying a house (on loan)
d. None of the these
Correct Answer: a
Detailed Solution:
Paying off mortgage – decrease in liabilities (and assets); Selling old car – decrease in assets
(and increase in assets); buying a house (on loan)– increase in assets (and liabilities).
______________________________________________________________________________
Natalia is contemplating to make a few financial decisions. If the interest rate is expected to
decrease next month, which of the following courses of action would be advisable?
1. Take loan (fixed interest rate) next month

2. Invest money in savings bank account now
3. Take loan (fixed interest rate) now
Choose the correct combination:
a. 3 only
b. 2 and 3 only
c. 1 and 2 only
d. 1, 2 and 3
Correct Answer: c
Detailed Solution: If the interest rate is to decrease next month, it will make savings in bank
account attractive now. Also, it will make taking fixed- rate loan cheaper next month.
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Which of the following can be categorised as ‘Earned Income’?
1. Dividends
2. Rental Income
3. Fees
4. Endowment
Choose the correct option:
a. 3 only
b. 1 and 3 only
c. 1, 2 and 3 only
d. 1, 2, 3 and 4
Correct Answer: a
Detailed Solution: Fees is earned income. Dividends and rental income is portfolio income.
Endowment is passive income.
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Which of the following expenditure is ‘variable’ in nature?
1. Electricity bill
2. Insurance premium
3. Gifts
4. Mortgages
a. 1 and 3 only
b. 2 and 3 only
c. 1 and 2 only
d. 1, 2 and 3
Correct Answer: a
Detailed Solution: Electricity bill and gifts are variable in nature. These vary over time.
Whereas insurance premium and mortgages do not vary over time.
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Which of the following will improve the financial well- being of an individual?
1. Lower debt ratio

2. Lower current ratio
3. Higher liquidity ratio
4. Debt payment ratio > 20%
a. 1 and 3 only
b. 1, 2 and 3
c. 2 and 4 only
d. 2, 3 and 4
Correct Answer: a
Detailed Solution: Lower debt ratio and higher liquidity ratio will improve the financial well-
being as it indicates an individual’s improved solvency and liquidity respectively.
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Read the following table carefully and find the suitable match-
A. Dividends 1. Passive Income

B. Balance Sheet 2. Portfolio Income
C. Insurance gains 3. Financial transactions during a period
D. Profit & loss A/c 4. Financial status of a given period
a. A-1, B-4, C-2, D-3

b. A-2, B-4, C-1, D-3
c. A-2, B-3, C-1, D-4
d. A-1, B-2, C-4, D-3
Correct Answer: b
Detailed Solution: Refer to the lecture video.
______________________________________________________________________________
Read the following table carefully and find the suitable match-
A. Uncertainty regarding trading of financial asset 1. Economic Factor

B. Less risk averse 2. Cash Inflow
C. Inflation 3. Liquidity Risk
D. Interest 4. Young investors
a. A-4, B-2, C-3, D-1

b. A-2, B-3, C-4, D-1
c. A-1, B-4, C-2, D-3
d. A-3, B-4, C-1, D-2
Correct Answer: d
Detailed Solution: ‘Liquidity risk’ relates to uncertainty that a financial asset might not be
tradeable for a certain period; ‘Young investors’ are ‘Less risk averse’; ‘Inflation’ is an ‘Economic
Factor’; ‘Interest’ is a ‘Cash Inflow’.
______________________________________________________________________________

Tiah is exploring the option to keep her savings of ₹ 5,00,000 in a bank account. The bank is
offering 3% interest rate and she is falling under 30% tax bracket. What amount of interest will be
in her hand after deducting tax one year hence?
a. ₹ 15,000
b. ₹ 4,500
c. ₹ 10,500
d. None of these
Correct Answer: c
Detailed Solution:
Post Tax interest in hand = (₹ 5,00,000 * 3%) * (1-0.30) = ₹ 10,500.
______________________________________________________________________________
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NPTEL Online Certification Courses

Indian Institute of Technology Kharagpur

Behavioral and Personal Finance

Calculate his net worth.

Detailed Solution: Assets = Jewelry (₹ 10,000) + Retirement investment (₹ 50,000) + Rental

a. 2 -> 6 -> 5 -> 3 -> 1 -> 4 -> 7

Detailed Solution: Refer to the lecture video.

Which of the following can be attributed to decrease in liabilities?

1. Take loan (fixed interest rate) next month

Choose the correct combination:

Choose the correct option:

Choose the correct combination:

1. Lower debt ratio

Choose the correct combination:

A. Dividends 1. Passive Income

a. A-1, B-4, C-2, D-3

Detailed Solution: Refer to the lecture video.

A. Uncertainty regarding trading of financial asset 1. Economic Factor

a. A-4, B-2, C-3, D-1

QUESTION 10: (Marks 2)

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