Finance Chapter 5

A savings amount of $5,000 on deposit for 8 years at 4 percent interest (compounded annually) would earn about ______ in interest.

$1,840

Phoebe has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a 2 year certificate of deposit worth $5,500 and she has a retirement account worth $38,550. What is the value of her liquid assets?

$2,050 Liquid Assets: Checking account $850 Savings account $1,200

Assume the following: Liquid assets $ 14,670 Current liabilities $ 2,670 Long term liabilities $66,230 Investment assets $ 9,340 Household assets $90,890 What is this person's net worth?

$46,000

If a student has a net worth of $50,000 and liabilities of $40,000, what are his/her total assets?

$90,000

The Lopez family budgets $420 a month for food. Last month they spent $413, which creates:

A budget surplus of $7

Balance sheet

A financial statement that reports what an individual or family owns and owes (AKA net worth statement)

Cash flow statement

A financial statement that summarizes cash receipts and payments for a given period

Which of the following is considered a liquid asset?

A long term bond held in a taxable brokerage account

Safe deposit box

A private storage area at a financial institution with maximum security for valuables

Budget

A specific plan for spending income

A budget deficit would result when a person's or family's:

Actual expenses are greater than planned expenses

Liabilities

Amounts owed to others

Monica has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000 and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Monica's net worth?

Assets: $4,500 $128,000 $62,000 $73,000 =$267,500 Net worth=$162,000 Liabilities: $7,500 $98,000 =$105,500

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

Assets: $40,000 Liabilities: $45,000

Liquid assets

Cash and items of value that can easily be converted to cash

Assets

Cash and other property with a monetary value

Money management

Day to day financial activities necessary to manage current personal economic resources while working toward long-term financial security

Assume the following: Assets = $110,000 Liabilities = $70,000 Net Worth = $35,000 Monthly credit payments = $1,640 Take home pay = $8,200 What is the debt ratio and debt payments ratio for this individual?

Debt ratio: liabilities/net worth =2.0 Debt payments ratio: monthly credit payments/take home pay =0.20

Long-term liabilities

Debts that are not required to be paid in full until more than a year from now

Current liabilities

Debts that must be paid within a short time, usually less than a year

Take-home pay

Earnings after deductions for taxes and other items (AKA disposable income)

If expenses for a month are greater than income, an increase in net worth will result.

False

Income

Inflows of cash to an individual or a household

Discretionary income

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

Assume the following as monthly amounts: Gross Salary: $4,000 Take Home Pay: $2,600 Savings: $450 Credit Card Payments: $500 What would be your savings ratio?

Savings ratio: monthly savings/gross monthly pay 450/4,000= 11.25%

Cash flow

The actual inflow and outflow of cash during a given time period

Deficit

The amount by which actual spending exceeds planned spending

Surplus

The amount by which actual spending is less than planned spending

Budget variance

The difference between the amount budgeted and the actual amount received or spent

Net worth

The difference between total assets and total liabilities

Insolvency

The inability to pay debts when they are due because liabilities far exceed the value of assets

Current liabilities are amounts that must be paid within a short period of time, usually less than a year

True

Current liabilities differ from long-term liabilities based on:

When the debt is due