Financial

11) Next use the following table of future value factors or your financial calculator to calculate the future value of this money in six years. The account will have a balance of $_______________ in six years (rounded to two decimal places).

$10,507.00

13) You just found out that you had a very eccentric uncle who lived quietly in the Bronx. He left you $25,000. You just saw the movie The Bucket List and have decided that you want to put some money away so that in 12 years, you can start fulfilling items on that list. With whatever money you have left, you'll pay off some bills. You have found an investment instrument that will pay 7% interest annually. Use the scenarios along with the following factor table data to answer each of the questions. Note that the complete Future Value and Future Value Annuity tables (as well as the Present Value and Present Value Annuity tables) are located in the appendix in your text. What is the amount you should invest today to have $28,750 in 12 years?

$12,765

2) You are calculating your net worth, and you have determined that your assets total $110,000, and your liabilities total $90,000. Your net worth is therefore _______________.

$20,000

13) You just found out that you had a very eccentric uncle who lived quietly in the Bronx. He left you $25,000. You just saw the movie The Bucket List and have decided that you want to put some money away so that in 12 years, you can start fulfilling items on that list. With whatever money you have left, you'll pay off some bills. You have found an investment instrument that will pay 7% interest annually. Use the scenarios along with the following factor table data to answer each of the questions. Note that the complete Future Value and Future Value Annuity tables (as well as the Present Value and Present Value Annuity tables) are located in the appendix in your text. Now the 12 years have passed, and you are ready to pull some money out of your fund. You talked to your investment advisor who says you can take this money and move it into a fund that will earn 8% interest annually. And you envision tackling most of your bucket list items over the next 15 years. What is the annual amount you will have to spend for your bucket list activities?

$3,359

12) Wagner Family The Wagners have saved $5,000 towards their goal to have $50,000 for a down payment on a house in 6 years. They will put the $5,000 in an account along with money they will deposit annually. They don't know how much that annual deposit should be, so they've asked you to calculate it They have found a savings institution that will pay 6% interest. What is the amount of money the Wagners will need to deposit annually (rounded to the nearest two decimal places) to achieve their down-payment goal?

$6,154.95

12) Audette Family The Audettes have set a goal to have $50,000 for a down payment on a house in 6 years. They have not saved anything so far. They have asked you to calculate how much they will need to put away each year to achieve their $50,000 down-payment goal. They have found a savings institution that will pay 6% interest. What is the amount of money the Audettes will need to deposit annually (rounded to the nearest two decimal places) to achieve their down-payment goal?

$7,173.60

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. First, compute the average annual finance charge by dividing the total finance charge of ___________ by the life of the loan, which is two years (2.0 years) = ________ (Note: Round your answers to the nearest dollar.)

- $1,600 - $800

6) Annual Percentage Rate (APR) You're borrowing $6,000 for a year with a stated annual interest rate of 6%. You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. First, compute the average annual finance charge by dividing the total finance charge of _____________ by the life of the loan, which is a year (1.0 year) = _____________. (Note: Round your answers to the nearest dollar).

- $360 - $360

6) Calculating simple interest and APR on a single-payment loan You're borrowing $6,000 for a year and a half with a stated annual interest rate of 6% Next, as a single-payment loan, the average loan balance outstanding is constant at $6,000. Complete the calculation. (Note: Round your answers to the nearest dollar or whole percentage point.) APR=Average Annual Finance Charge / Average Loan Balance Outstanding = ______________________ / _________________ = _______%

- $360 - $6,000 - 67%

4) The following is a partial balance sheet for Andy and Kim Garza. Complete the balance sheet by determining their total assets, total current liabilities, long-term liabilities, and net worth. - Total Current Liabilities: - Total Long-Term Liabilities: - (1) Total Assets: - (2) Total Liabilities: - Net Worth (1) - (2) - Total Liabilities and Net Worth: Based on the completed balance sheet, the Garzas' net worth is _________________

- $4,917.99 - $39,999.84 - $176,085.77 - $44,917.83 - $131,167.94 - $176,085.77 - $131,167.94

6) Calculating simple interest and APR on a single-payment loan You're borrowing $6,000 for a year and a half with a stated annual interest rate of 6% You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. First, compute the average annual finance charge by dividing the total finance charge of ___________ by the life of the loan, which is a year and a half (1.5 years) = ___________. (Note: Round your answers to the nearest dollar).

- $540 - $360

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $2,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) APR = Average Annual Finance Charge / Average Loan Balance Outstanding = ______________________ / _______________________ = _____%

- $80 - $1,920 - 4.00

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $2,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) You also want to calculate the APR (annual percentage rate) and compare it to the stated interest rate. First, compute the average annual finance charge by dividing the total finance charge of ________ by the life of the loan, which is a year (1.0 year) = _________ (Note: Round your answers to the nearest dollar.)

- $80 - $80

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) APR = Average Annual Finance Charge / Average Loan Balance Outstanding = _____________________ / _____________________ = ______%

- $800 - $8,400 - 9.52%

7) Dan Young has prepared his annual financial statements in order to analyze the data. The data provided are items from Dan's balance sheet and income and expense statement. Use the data provided to calculate Dan's financial statement ratios. Enter your answers as percentages rounded to two decimal places. For example, .15006 would be entered as "15.01%." Dan's solvency ratio: _______% Dan's liquidity ratio: _______% Dan's savings ratio: _______% Dan's debt service ratio: ______%

- 35.00% - 20.00% - 12.19% - 18.00%

6) Annual Percentage Rate (APR) You're borrowing $6,000 for a year with a stated annual interest rate of 6%. Next, as a single-payment loan, the average loan balance outstanding is constant at $6,000. Complete the calculation. (Note: Round your answers to the nearest dollar or whole percentage point.) APR = Average Annual Finance Charge / Average Loan Balance Outstanding = ___________________ / ___________________ = ______%

- 360 - 6,000 - 6%

5) General factors to consider when shopping for a consumer loan Given the long list of relevant loan-related considerations described above, the paradox of choice often arises when attempting to make borrowing decisions. Which of the following phrases addresses the characteristics and recommended solutions for this phenomenon? Check all that apply.

- Arises when there are too many complicated choices, such you can become overwhelmed and make poor decisions - Be prepared to ask for assistance - Identify your goals and a framework for evaluating any trade-offs that must be made when making your decision

5) General factors to consider when shopping for a consumer loan You're shopping for a big loan, but you have misgivings about Darnell, the loan officer, at an institution you just visited. What are some reasons that may have you uneasy about accepting a loan there? Check all that apply.

- Darnell gave you a range of terms and said they'll be worked out at closing. - Darnell spent most of the time emphasizing benefits of loans with balloon payments and interest-only payments. - Your parents may be able to help you with the down payment, but Darnell told you to assume they will and to enter a down payment on the application including their contribution. - Darnell said that today is the only day you can secure the loan with favorable terms.

5) General factors to consider when shopping for a consumer loan What are the characteristics of your reasons for feeling uneasy about Darnell the loan officer? Check all that apply.

- Feeling under pressure to make a decision - The way the loan officer omitted pertinent information - The loan officer's embellishment of the facts

5) General factors to consider when shopping for a consumer loan What are the characteristics of your reasons for feeling uneasy about Rajiv the loan officer? Check all that apply.

- Feeling under pressure to make a decision - The way the loan officer omitted pertinent information - The loan officer's embellishment of the facts

2) Student Loans Fill in the blanks to provide the correct information. CRYSTAL: I think so. Interest will not start to accrue until __________________ and repaying the loan isn't scheduled to begin until ___________________________ because this loan is ______________________.

- I get out of school - I get out of school - mine, not my parents

5) General factors to consider when shopping for a consumer loan You've made the decision to purchase an item that is affordable only with a loan. When shopping for a loan, there are many aspects of the loans that you should examine. Which of the following questions should be asked and answered about a specific loan proposal before accepting a lender's offer? Check all that apply

- If I accept the loan, what is my new debt safety ratio? - Does the loan have a prepayment penalty? - Do the loan's monthly payments fit in my budget? - What is the loan's APR? - What late payment charges, if any, can be accessed, and when? - What is the total cost of transaction (cost of item purchased plus cost of loan)?

5) General factors to consider when shopping for a consumer loan Your friend suggested you look into a variable-rate loan. What questions should you ask? Check all that apply.

- Is there a maximum rate? - How often is the rate subject to change? - What changes after a rate adjustment—the monthly payment amount or the number of monthly payments left on the loan? - Can I afford the maximum possible monthly payment? - What is the interest rate tied to? - How many points are added to the base rate?

5) General factors to consider when shopping for a consumer loan You're shopping for a big loan, but you have misgivings about Maria, the loan officer, at an institution you just visited. What are some reasons that may have you uneasy about accepting a loan there? Check all that apply.

- Maria spent most of the time emphasizing benefits of loans with balloon payments and interest-only payments. - Maria said that her loan was most likely the only one you'd be able to obtain. - Maria told you that the interest rate is the only important fee to worry about and that discussing the APR is an unnecessary complication. - Maria said that today is the only day you can secure the loan with favorable terms.

3) Now that you have an understanding of assets and liabilities, an easy formula can determine your net worth. Again, recalling that net worth equals total assets minus total liabilities, complete the following statements. - ____________: The fair market value of assets owned less liabilities owed - __________: The amount left after selling assets and paying off all liabilities - _____________: Net worth is less than zero

- Net worth - Equity - Insolvency

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: Very good. Let's start completing the application for a __________________ loan. And remember, the interest payments may be tax deductible depending on ____________________________.

- Parent - your income

5) General factors to consider when shopping for a consumer loan You're shopping for a big loan, but you have misgivings about Rajiv, the loan officer, at an institution you just visited. What are some reasons that may have you uneasy about accepting a loan there? Check all that apply.

- Rajiv gave you a range of terms and said they'll be worked out at closing. - Rajiv said that today is the only day you can secure the loan with favorable terms. - Rajiv said that his loan was most likely the only one you'd be able to obtain. - When you filled out the loan application, Rajiv told you to leave out the smaller amounts you owe to department stores.b

6) Which of the following are important steps in financial record keeping? Check all that apply.

- Safely disposing of unneeded documents - Maintaining records for tax and insurance purposes

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: Okay. Because it has the lowest interest rate and highest borrowing limit, I think I'll recommend you apply for a __________________ loan. But one word of caution: Regardless of what kind of loan you take out, it's easy to build up debt not only while in school but afterwards, even with the good job your education should help you obtain. ___________________ , legislation was passed ruling that _____________________________________ ________________________ you from the responsibility to repay person loans.

- Stafford - Recently - filing for bankruptcy protection from creditors - does not relieve

5) General factors to consider when shopping for a consumer loan What are the characteristics of your reasons for feeling uneasy about Maria the loan officer? Check all that apply.

- The way the loan officer omitted pertinent information - The loan officer's embellishment of the facts - Feeling under pressure to make a decision

1) Characteristics and types of consumer loans Identify characteristics of a consumer loan in the following list. Check all that apply.

- Used for a one-time transaction for a specific purpose - Has a specific repayment schedule for a defined period of time and a defined amount - Used to pay for comparatively expensive and infrequent purchases - Has a formal, negotiated contract

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Paolo Paolo wanted to rent a share in a ski house for the upcoming winter, a six-month season. The house owner would not allow Paolo to pay the rent in six equal payments over the course of the ski season and, instead, required full payment up front. Paolo found an investment opportunity promising a 7% annual return. He also found a loan with a 4% annual interest rate. He decided to take out the loan to pay the landlord the full amount of the rental. Every month, Paolo planned to deposited one sixth of the loan amount (or what would have been the monthly rental payment) into the investment and take the chance that the investment would return what it promised. Paolo most likely took out _____________________ loan because he ____________________________________________.

- a single-payment - made best use of the rental money

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Megan Megan's uncle recently died. Megan will inherit enough money from her uncle to buy a new car. She doubts her current car will continue running much longer but she doesn't want additional debt payments right now. Megan took out a loan to pay cash for a new car today and will pay off the loan as soon as she receives her inheritance. Megan most likely took out ________________________ loan because she ____________________________________.

- a single-payment - only needed interim financing

4) With their balance sheet in place, Andy and Kim can compare their total liabilities to their total assets to generate a more realistic view of their current wealth position. The Federal Reserve Bulletin provides data on median net worth, broken down by age brackets. - Based on the Federal Reserve Bulletin data, the Garzas are ________ the median net worth for their age group. - Their _____ would be considered their dominant asset. - Based on their liabilities, it ______________ appear that they have adequate liquid assets to meet their bill payments and to cover any small, unexpected expenses. - Their balance sheet lists their house at 8% higher than the purchase price. The equity in their home is __________________.

- above - home - does not - $122,000.16

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Raphael Raphael took out a loan to buy new furniture. He has a steady job and a small savings account but didn't want to pay cash for the furniture. Raphael manages his finances so that his monthly income and expenses are consistent. He doesn't expect any financial windfalls in the near or distant future. Raphael most likely took out _______________________ loan because ________________________________________.

- an installment - he can slowly but surely pay off the loan

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Amy Amy needed a loan and knew that she would be less likely to default if subject to monthly, fixed payments. Amy most likely took outa _____________________ loan because ___________________________________________.

- an installment - she only has to pay part of the loan each month

5) If the equation results in a positive number, a ________________ exists. If the equation results in a negative number, a __________________ exists.

- cash surplus - cash deficit

6) Calculating simple interest and APR on a single-payment loan You're borrowing $6,000 for a year and a half with a stated annual interest rate of 6% The stated interest rate and APR are _____________ because the: ____________________________________________.

- equal - Simple interest method was used to calculate finance charges

6) Annual Percentage Rate (APR) You're borrowing $6,000 for a year with a stated annual interest rate of 6%. The stated interest rate and APR are __________ because the: _________________________________________________.

- equal - Simple interest method was used to calculate finance charges

5) For example, your mortgage would be considered a _________ expense, because _______________________________________. Conversely, grocery bills would be considered ____________, because the actual amount is _______________.

- fixed - the payment amount is set by contract - variable - not known

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Carlos Carlos took out a ten-year loan. He paid $368 every month for 120 months, until the loan was paid off. Carlos most likely took out a ___________________ loan because the monthly payment and number of payments ___________________________________________.

- fixed-rate - didn't change

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Becky When Becky took out a loan, she wanted the security of knowing what her monthly payments would be and for how long. Becky most likely took out a _________________ loan because the monthly payment and number of payments _______________________.

- fixed-rate - were not subject to change

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) The APR is _______________ the stated interest rate because the ______________________________________________.

- higher than - Discount method was used to calculate finance charges

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $2,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) The APR is ___________________ the stated interest rate because the _____________________________________________.

- higher than - Discount method was used to calculate finance charges

2) Student Loans Fill in the blanks to provide the correct information. MR. JUAREZ: Yes. Interest will start to accrue ______________________. We'll most likely be expected to begin repaying the loan _______________________________________________.

- immediately - within 60 days of receiving the funds

5) Preparing an income and expense statement helps in answering the question, "Where does all my money go?" This statement takes __________ and subtracts ________________ to determine an individual's or a family's cash surplus or deficit situation.

- income - expenses

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $2,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) Next, as a single-payment loan, the average loan balance outstanding is constant at the ________________________, in this case, _______________.

- loan disbursement - $1,920

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) Next, as a single-payment loan, the average loan balance outstanding is constant at the ___________________ , in this case, __________________.

- loan disbursement - $8,400

6) Good record keeping is an important discipline as you map out your financial goals. Imagine if you were notified of an IRS audit: How difficult would it be to get all the necessary past information together? If you have all the data in a single, well-organized place, however, you will be ready for any situation. How do you get organized? - One good record-keeping tip is to prepare your financial statements at least ________________. - Ideally, keeping _____________ will help you summarize all your transactions. - A ledger has sections where data is recorded for what you own or your ________ ; what you owe or your ________________ ; your cash inflows or your __________; and your cash outflows or your _______________

- once a year - a ledger - assets - liabilities - income - expenses

2) Student Loans Fill in the blanks to provide the correct information. MRS. JUAREZ: That's okay. We're willing to accept those terms, not only because we want our daughter to concentrate on her studies rather than get another job, but also because we like knowing that the borrowing limit is ______________________________________ instead of _____________________________________.

- the cost of attendance less her current loan - a set dollar amount

7) Calculating finance charges using the discount method and APR on a single-payment loan You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done ________________________ the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal __________ the finance charges. For example, if the principal is $12,000 and the finance charges are $1,920, the borrower will receive ___________________.

- the same as - less - $10,080

7) Calculating finance charges using the discount method and APR on a single-payment loan You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done _________________ the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal _______ the finance charges. For example, if the principal is $12,000 and the finance charges are $1,800, the borrower will receive ________________.

- the same as - less - $10,200

7) Calculating finance charges using the discount method and APR on a single-payment loan You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done __________________ the way they're computed using the simple interest method. Under the discount method, a borrower receives the principal _________ the finance charges. For example, if the principal is $4,000 and the finance charges are $160, the borrower will receive __________________.

- the same as - less - $3,840

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Clancy Clancy is somewhat of a risk taker. When he needed a loan, he believed that interest rates would fall over most of the life of the loan. Clancy most likely took out a ___________________ loan because _________________________________________.

- variable-rate - he believes his interest payments will decrease

3) Characteristics of single-payment or installment loans and fixed- or variable-rate loans Janet Janet needed a long-term loan, somewhere between 15 and 30 years. She learned that the longer the term, the fewer rate options she had. Janet finally had to go with the 30-year loan. Janet most likely took out a __________________ loan because ________________________________________.

- variable-rate - the long term probably assured a variable rate

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: Mr. and Mrs. Juarez, let's review a couple of the loan's terms that are different from those of Ginny's loan. First, you ________ be subject to _____________________ . And, the interest rate on your loan will be _____________ than Ginny's.

- will - an origination fee - higher

6) Calculating simple interest and APR on a single-payment loan You are taking out a single-payment loan that uses the simple interest method to compute the finance charge. You need to figure out what your payment will be when the loan comes due. The equation to calculate the finance charge is: Fs = P __ r __ t In the equation, FsFs is the finance charge for the loan. What are the other values? 1) P is the ________________ amount of the loan. 2) r is the stated ____________ rate of interest. 3) t is the term of the loan in ____________________.

- x - x 1) principle 2) annual 3) years

7) Calculating finance charges using the discount method and APR on a single-payment loan The following equation computes the finance charges on your loan: Fd = Fd = P __ r __ t In the equation, FdFd is the finance charge for the loan. What are the other values? 1) P is the _____________ amount of the loan. 2) r is the stated _____________ rate of interest. 3) t is the term of the loan in ____________.

- x - x 1) principle 2) annual 3) years

1) Personal Financial Planning: Statements, Reports, and Plans As you begin your journey toward financial security, it is important to develop road maps to help you navigate your route. Preparing and interpreting personal data is the cornerstone of personal financial planning. The following reports and statements constitute personal financial planning. Complete each definition. 1) ________________________ are the road maps used on the journey to financial security. 2) _________ are ____________________________, which are based on expected income and expenses. These reports are used to monitor and control spending habits. 3) ________________________________ are the umbrella under which important statements and reports reside. 4) One statement is the _______________, which outlines one's financial position. Essentially, this statement is comprised of ________ (things that are owned) less _____ (things that are owed), resulting in an individual's _________. 5) The other statement is the ____________________, which measures financial performance over a period of time.

1) - Financial plans 2) - budgets - forward looking reports 3) - Personal financial statements 4) - balance sheet - assets - debts - net worth 5) - income and expense statement

3) Acquiring assets by taking on debt is one way you can accumulate assets. And many of these loans will fall into the category of long-term liabilities. But, in order to present them on the balance sheet correctly, the following must be known about the loan. Complete each statement as it applies to loans. 1) Loans: Regardless of the type of loan, only the ____________________________________ is shown on the balance sheet. 2) The ________ loan balance is not what is currently owed but what ____________________________. 3) Loan amount: The portion of a loan listed as a liability on the balance sheet is only the ______________________.

1) - latest outstanding loan balance 2) - initial - was originally borrowed 3) - loan's principal

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.) 1) Finance charges 2) Loan disbursement 3) Total payback

1) $1,600 2) $8,400 3) $10,000

6) Calculating simple interest and APR on a single-payment loan You're borrowing $6,000 for a year with a stated annual interest rate of 6%. Complete the following table. (Note: Round your answers to the nearest dollar.) 1) Financial charge 2) Total Payback

1) $360 2) $6,360

6) Calculating simple interest and APR on a single-payment loan You're borrowing $6,000 for a year and a half with a stated annual interest rate of 6% 1) Finance charge 2) Total Payback

1) $540 2) $6,540

11) You have an eccentric aunt who has promised to deposit $7,000 in a savings account in your name. She has stated that you will not have access to the money for six years but that the money will be earning 7% interest. At the designated future date, the principal and interest will be yours to purchase a new car. First gather the relevant data by completing the following table. 1) Present Value: 2) Period: 3) Rate of Interest: 4) Future Value Factor:

1) $7,000 2) 6 3) 7.0% 4) 1.5

7) Calculating finance charges using the discount method and APR on a single-payment loan You're borrowing $2,000 for a year with a stated annual interest rate of 4%. Complete the following table. (Note: Round your answers to the nearest dollar.) 1) Finance charges 2) Loan disbursement 3) Total payback

1) $80 2) $1,920 3) $2,000

6) Skip and Jackie Garcia have been married for over two years. They have been trying to save for a down payment on a house, but they feel that there is never anything left over to save. They talked with their parents who suggested that they prepare an income and expense statement. Skip and Jackie put together the following worksheet. 1) Name: Jackie Garcia 2) Savings account 3) Total Income 4) Utilities - gas, electric, water 5) Auto loan: 6) Taxes - Skip's income and Social Security 7) (2) Total Expenses 8) Cash Surplus or Deficit (1 - 2)

1) 17,813 2) 16 3) 39,460 4) 1,740 5) 3,780 6) 3,375 7) 36,919 8) 2,541

5) Check the correct category for each of the following items. Note: for purposes of this exercise, consider cash in and out for this couple regardless of whether the item is for personal or business use. 1) Cost of business meals 2) Annual bonus 3) Plumbing bill

1) Cash Out/Expense 2) Cash In/Income 3) Cash Out/Expense

3) 1) Property taxes, current year 2) Car insurance 3) Two-year loan to purchase investment securities 4) A college-level educational loan 5) Outstanding principal on your primary residence not due in the current year

1) Current Liability 2) Current Liability 3) Long-Term Liability 4) Long-Term Liability 5) Long-Term Liability

9) Budgeting Examples For each of the following scenarios, indicate whether the individual made a correct choice or an incorrect choice when preparing a budget. 1) Nathan is a sales rep who, based on last year, averaged $2,200 of monthly commission before taxes. He should include this in his budget. 2) Stella was just notified that her contribution to the company's health plan is increasing by 3.5%. It's a company expense, so Stella doesn't include it in her budget. 3) As Sam was reconciling his checkbook, he realized that he incurred $13.25 last month for ATM withdrawals. He looked back at the last six months and realized that he averaged the same amount each month. This is an unexpected expense and shouldn't be listed in his budget. 4) Every year the Wus buy a big item or take a trip with a single annual bonus Barb receives. They included this in their budget.

1) Incorrect Choice 2) Incorrect Choice 3) Incorrect Choice 4) Correct Choice

2) Choose the correct category for each asset in the following table. 1) Pearl necklace 2) The brick patio in your backyard 3) Fur coat 4) Money market fund 5) Your house 6) Money stuffed in a mattress 7) 401(k) 8) Rental property in Playa Negra, Costa Rica

1) Personal Property 2) Real Property 3) Personal Property 4) Liquid Assets 5) Real Property 6) Liquid Assets 7) Investments 8) Investments

5) Categorize the expenses listed in the following table. 1) Internet access fees 2) Property taxes

1) fixed 2) fixed

4) Where to get consumer loans Loans from these institutions are in high demand but given only to those who are good credit risks. These institutions provide the most consumer loans.

Commercial banks Are the biggest sources of consumer loans. They offer a variety of loans. Their loans are in high demand so they can afford to be picky about whom they loan money to, usually people with the best credit ratings. These banks have access to inexpensive funds to loan from their depositors.

4) Where to get consumer loans These institutions are known as small loan companies with most loans for $5,000 or less

Consumer finance companies Are also referred to as small loan companies. Their borrowers typically have trouble getting loans elsewhere due to poor credit ratings and are greater risks than many other borrowers. As such, borrowers are subject to higher interest rates. To prevent these companies from taking unfair advantage of their customers, state governments set interest-rate caps on how much they can charge. Loans are usually $5,000 or less.

4) Where to get consumer loans These are nonprofit organizations whose loan interest rates are relatively low. These institutions are owned by its members who are the only people eligible to apply for this institution's loans.

Credit unions Loans from credit unions are only available to their owner/members. As nonprofit institutions, they can offer very favorable interest rates.

9) Aspects of budgeting The following statements describe various aspects of budgeting. Indicate whether each statement is true or false. True or False: When estimating expenses, developing an amount that one can live within is the best approach.

False

10) Pedro and Lucy started to create a budget (based on last year's income and expense statement) but got stuck. They know that you have learned how to create budgets and are asking for your help. They would like you to input the correct values for the first three months of next year 1) Lucy's Salary 2) Total Income 3) Puget Sound Energy 4) Food 5) Public transportation 6) Parent's loan 7) Total expenses 8) Cash surplus (deficit) 9) Cumulative Surplus (deficit)

February Column: 1) $1,181 2) $2,494 3) $50 4) $90 5) $200 6) $58 7) $1,441 8) $1,053 9) 2,106

4) Where to get consumer loans Using these institutions is essentially borrowing from oneself. These institutions usually carry variable interest rates and need not be paid back.

Life insurance companies The law allows borrowing the cash value of an insurance policy with a life insurance company. Since the cash value is the savings portion of the policy, it already belongs to the policyholder so any use of that money is really a loan to oneself. And, since it's the policyholder's money, he or she doesn't have to pay it back. The policyholder must remember that borrowing on the cash value of the policy without paying it back reduces the insurance coverage.

10) Pedro and Lucy started to create a budget (based on last year's income and expense statement) but got stuck. They know that you have learned how to create budgets and are asking for your help. They would like you to input the correct values for the first three months of next year 1) Pedro's Salary 2) Total Income 3) Rent 4) Food 5) Automobile 6) Insurance 7) Fun Money 8) Cash surplus (deficit) 9) Cumulative Surplus (deficit)

March Column: 1) $1,313 2) $2,494 3) $450 4) $25 5) $360 6) $225 7) $208 8) $828 9) $2,934

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: Ginny, I understand that you need additional aid to pay for your higher education and that your parents are willing to help you. They can apply for a _____________ loan.

PLUS

2) Student Loans Fill in the blanks to provide the correct information. MR. COHEN: She's all set there. Her mother and I took out a _____________ loan to help out with the undergraduate degree. Crystal doesn't have any outstanding debt

PLUS

4. Where to get consumer loans These institutions are sometimes owned by companies that manufacture and sell expensive items, such as automobiles and appliances.

Sales finance companies Provide the financing for consumers who buy big-ticket items rather than the items' vendors providing it. Many companies are owned by the manufacturers of the goods but are separate entities. Their interest rates are usually higher than some other lending institutions because the dealer acts as an intermediary and expects to be paid for arranging the loan.

10) Looking at the completed budget, what single item would you recommend that they add to their budget?

Savings and Investments

4) Where to get consumer loans These institutions are not high volume consumer loan lenders. These institutions mainly make mortgage loans.

Savings and loan associations Most loans made by savings and loan associations are for mortgages. While these organizations may make loans for high-cost items, such as cars, appliances, and home improvements, they don't make a big business of consumer loans.

2) Student Loans Fill in the blanks to provide the correct information. GINNY: I'm so relieved to hear that. I have a __________________, but it just isn't enough

Stafford loan.

10) This is because: (Looking at the completed budget, what single item would you recommend that they add to their budget? = Savings and Investments)

The couple needs to budget for contingencies and save for future goals.

7) Financial statement ratios play an important role in understanding and interpreting financial data. The solvency, liquidity, savings, and debt service ratios are important tools that will provide you with information, helping you chart and improve your personal financial planning. Complete the equations for each of the following financial statement ratios. Solvency RatioSolvency Ratio = _____________ / ______________ Liquidity RatioLiquidity Ratio = _______________ / ________________ Savings Ratio = _____________ / ________________ Debt Service Ratio = _______________ / __________________

Total Net Worth / Total Assets Total Liquid Assets / Total Current Debts Cash Surplus / Income after taxes Total Monthly Loan Payments / Monthly Gross Income

10) Pedro and Lucy started to create a budget (based on last year's income and expense statement) but got stuck. They know that you have learned how to create budgets and are asking for your help. They would like you to input the correct values for the first three months of next year 1) Pedro's Salary 2) Lucy's Salary 3) Total Income 4) Rent 5) Puget Sound Energy 6) Verizon 7) Food 8) Automobile 9) Public transportation 10) Insurance 11) Parent's Loan 12) Fun Money 13) Total Expenses 14) Cash surplus (deficit) 15) Cumulative Surplus (deficit)

Total for Three Months: 1) $3,939 2) $3,543 3) $7, 482 4) $1,350 5) $150 6) $75 7) $270 8) $1,080 9) $600 10) $225 11) $174 12) $624 13) $4,548 14) $2,934 15) $2,934

9) Aspects of budgeting The following statements describe various aspects of budgeting. Indicate whether each statement is true or false. True or False: In situations where an annual budget deficit exists, cutting expenses from the budget is optimal.

True

9) Aspects of budgeting The following statements describe various aspects of budgeting. Indicate whether each statement is true or false. True or False: To finalize the budget, compare projected income to projected expenses. When income equals or exceeds total expenses, it is considered a balanced budget.

True

9) Aspects of budgeting The following statements describe various aspects of budgeting. Indicate whether each statement is true or false. True or False: To remedy a short-term budget surplus, shift additional income to a month where a deficit exists.

True

9) Aspects of budgeting The following statements describe various aspects of budgeting. Indicate whether each statement is true or false. True or False: When estimating income, include amounts that you can control, like bonuses and rental income.

True

2) The balance sheet equation and assets Preparing a personal balance or statement of financial position helps get a handle on your financial well-being. A balance sheet has three parts that, when taken together, summarize your financial picture. Complete the following balance sheet equation by selecting the correct term for each piece of the formula. (Total Assets) = (Total Liabilities) + (Net Worth)

What you own = What you owe + Your equity

2) Student Loans Fill in the blanks to provide the correct information. CRYSTAL: I understand that I ______ expected to contribute some funds to pay for my educational expenses.

am

2) The items you own, or your _________, are classified regardless of whether they were purchased for cash or financed with debt. A useful way to group assets is on the basis of their underlying categories: liquid assets, investments, real property, and personal property.

assets

2) As you gather asset information, it is important to identify and record all assets. Regardless of asset category, all assets listed on the balance sheet should be recorded at _________________________.

fair market value

3) Recall that the balance sheet equation states that net worth equals total assets minus total liabilities. Identifying assets and recording them is one of the first steps in balance sheet preparation. In some instances, assets are acquired with cash. In others, often large purchases, they are acquired by securing debt (for example, a bank loan or a department store charge). Regardless of how an asset is acquired, items purchased through financing have associated debt which is owed by you and must be repaid in the future. These items, or _____________, are generally classified according to maturity. Check the category to which each of the items belong.

liabilities

1) Characteristics and types of consumer loans Credit can be great to have. In some situations, having credit can even help you achieve some financial goals, but only as long as you ____________________________________. Consumer loans can be part of your credit management program.

manage your credit well

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: Crystal, I understand that you wish to obtain a person loan to help with your graduate school studies. Let's take a look at a variety of loans. The first thing we need to examine is your eligibility, meaning that you ______________________________.

must demonstrate a financial need

2) Student Loans Fill in the blanks to provide the correct information. COUNSELOR: That's right. And since you've completed your undergraduate studies, I need to confirm that you meet another requirement, which is that you must _______________________________.

not be in default on other person loans

9) What is a budget? A budget is a ________________ report that helps achieve financial goals. A cash budget is a valuable money management tool that helps you:

short-term