Personal Finance Quiz 2

Discretionary income equals

Money left over after paying for housing, food, and other necessities.

An example of a fixed expense is

Medical expenses. Gifts. Utilities. Home rental payment. (Correct) Recreation.

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of

$40,000. Assets minus Liabilities = $100,000 − 60,000 = $40,000.

A current ratio of 2 means

$2 in liquid assets are available for every $1 of current liabilities.

Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000

$3,000

An example of a variable expense is a(n)

Mortgage or rent payment. Installment loan payment. Monthly train ticket for commuting to work. Monthly allocation for life insurance. Electric bill. (correct)

Given the following information, calculate the liquidity ratio: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,600 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

2.44 Liquid assets/Monthly expenses = $5,000/$2,050 = 2.44.

Given the following information, calculate the current ratio: Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

2.50 Liquid assets/Current liabilities = $5,000/$2,000 = 2.50.

Given the following information, calculate the debt ratio percentage: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

33.33 percent Liabilities/Net worth = $25,000/$75,000 = 0.3333 = 33.33%.

Which of the following ratios indicates that liquid assets are available to pay current liabilities for a household?

Current ratio

Money management refers to

Day-to-day financial activities.

A debt ratio of 0.5 indicates

For every dollar of net worth, debt equals $0.50.

A personal balance sheet reports

Items owned, amounts owed, and your net worth.

The amount you would have left if all assets were sold and all debts were paid in full is called your

Net worth.

Which of the following is a cash inflow?

Payment for rent Purchase of groceries Payment for loan Income from employment (correct) Payment for medical expenses

Which of the following is a liquid asset?

Savings/money market accounts Cash surrender value of life insurance Checking account balance Money market accounts All of these are liquid assets Answer: All of these are liquid assets.

Which of the following is a component of money management?

Storing and maintaining personal financial records and documents. Creating a balance sheet. Creating and implementing a plan for spending and saving. Creating a cash flow statement. All of these choices are components of money management. Answer: All of these choices are components of money management.

The equation to calculate net worth is

Assets minus Liabilities = Net worth.

The document that would tell you what you received and spent over the past month is the

Cash flow statement.

Which of the following situations describes a person who could be insolvent?

Assets $56,000; annual expenses $60,000 Assets $78,000; net worth $22,000 Liabilities $45,000; net worth $6,000 Assets $40,000; liabilities $55,000 Annual cash inflows $45,000; liabilities $50,000 Insolvency occurs when liabilities, $55,000, far exceed assets, $40,000.

When household budgets must be cut, which of the following categories would be most difficult to cut?

Auto insurance When household budgets must be cut, spending is most frequently reduced for vacations, dining out, cleaning and lawn services, cable/internet service, and charitable donations.