personal finance ch1-2

Jessie has $4,000 in a bank account, $2,800 in a 401(k) plan at work, a car with a current value of $28,000, and a house that she purchased for $92,000 that has a current value of $118,000. The current balance of her home mortgage is $81,000, she has one credit card with a $3,000 balance, and a student loan with a balance of $6,000. What is Jessie's current net worth?

Assets: $4,000 + $2,800 + $28,000 + $118,000 = $152,800Liabilities: $3,000 + $81,000 + $6,000 = $90,000Net worth = $62,800

A budget will not do which of the following?

Help determine how much risk a family should take on investments

Which of the following statements is not true regarding education and financial position?

Higher education always guarantees a higher income

If your cash outflows are $600 and your cash inflows are $1,000, you can increase your net worth by

$1,000 - $600 = $400

Jim has $1,000 income from his job and $200 stock dividend income this month. This month Jim has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What is his cash inflow this month?

$1,200

Lucky Louie just inherited $50,000 from his great aunt, has $1,500 in his checking account, owns a car with a value of $8,000, and has $20,000 in his 401(k) at work. Louie owes $6,000 on his car, $12,000 on school loans and $3,000 on his credit card. What is Louie's net worth?

$58,500

Allison expects her monthly cash inflow after taxes to be $3,000. She also has the following monthly expenses: Rent, $750; student loan payment, $200; utilities, $150; food, $300; recreation, $600; car expenses, $200; clothing, $150. What is Allison's net cash flow for the current month?

$650

Which factor affects a household's cash flows? -Monthly spending on non-essentials -Type or level of job -Stage in career -All of these

- all of these

If spending exceeds the amount of your income over a period of time, your best option is probably to -All of these -increase your work hours. -get a second job. -reduce your spending.

-All of these

Which of the following is not a way that insurance is designed to protect your wealth -Protecting the assets that you own -Limiting your exposure to potential liabilities -Protecting your investments from downturns in the stock market -B and D are both correct -Enhancing your income in the event of a loss

-B and D are both correct

Which of the following is not a cash outflow? -Rent -Car payment -Salary -Telephone bill

-salary

Margaret has $5,000 in her checking account, a home with a market value of $175,000, and stocks valued at $10,000. Margaret also has credit card debt of $15,000. Margaret's liquidity ratio is

.33

The current financial position of an individual or family is best presented with the use of a

balance sheet

Jennifer has assets of $100,000 and $10,000 of debt. She could

borrow more money, since her debt ratio is low.

A cash flow statement that is based on forecasted cash flows for a future time period is called a(n)

budget

________ is the process of forecasting future expenses and savings

budgeting

If you do not budget for unexpected expenses in a given month, you will likely experience a(n)

cash shortage

Which of the following is not a decision involved in managing your liquidity

choosing between credit cards

The cash flow statement reports a person's or family's

current income and payments.

Debts that are to be paid off within a year are called

current liabilities

If you sell stock from your portfolio to pay off your car loan, your debt ratio of 0.5 will

decrease.

The act of determining how wealth will be distributed before or upon death is

estate planning.

The term "liquid assets" refers to

financial assets that can be easily sold without a loss in value.

A plan for ________ is needed to determine how much you could afford to borrow, the length of the loan, and how to select a loan that charges competitive interest rates.

financing

Your financial position is highly influenced by all of the following, except

the bonus check your best friend just received.

A measure of your wealth is

the current market value of what you own minus the value of what you owe.

Long-term liabilities include all of the following, except

the monthly payment due on a credit card

The income in your budget is not affected by

the standard of living you experienced as a child

Corporations issue stocks for all of the following reasons, except

to loan money to shareholders

Retirement planning should begin

well before you retire

Although career choices affect your income, you should choose the career that

will be enjoyable and will suit your skills

If you are interested in achieving a long-term savings goal, then

you will try to save a small amount because that is better than saving nothing at all.

All of the following affect cash outflows, except

your education level

Your financial plan is usually strongly influenced by

your tolerance for risk and your self-discipline.

Which of the following would increase your liquid assets?

Making regular deposits to a savings account at your bank

Which of the following could save a smaller proportion of their earnings to achieve the same level of wealth as the others?

Medical doctors

Which of the following does not protect your assets and/or income?

Money insurance

Which of the following is a credit management decision?

Obtaining a student loan to attend college

Which of the following would not be a factor in evaluating your current financial position?

Possible lottery winnings

Which of the following is not a true statement about mutual funds?

Proceeds are only invested in stocks

The financial crisis of 2008-09 affected the financial position of individuals in all of the following ways, except which of these?

The demand for homes increased because more homeowners were trying to sell their homes.

What is the core purpose of buying insurance?

Protect your wealth and assets

Which of the following is not a step in developing a financial plan?

Put your plan away for three to five years and then review it for accuracy and progress

Which of the following is an example of money management?

Putting your money in a savings account at your bank

Jakob received a $1,000-a-year raise in January, sold stocks in March for $6,000 that were originally purchased for $4,000, and in July had a $100 monthly increase in mortgage payments on his adjustable rate mortgage. The increased mortgage payment started in July and was in effect for the remainder of the year. What was the total impact on Jakob's cash flow for the year?

Raise$1,000 Sale of stock$6,000 Increased mortgage payments(600) Net cash inflows$6,400

Which of the following would not help protect you from unethical or incompetent advice from a financial adviser?

Relying entirely on the adviser as to when to buy and sell

Allison anticipates an additional car expense two months from now of $400 for new tires that she has not previously budgeted for. What action should Allison take?

Revise her car expenses over the next two months to allow for the additional cost of the new tires

Which of the following is not a financing decision?

Should you buy Apple stock with savings?

Which of the following is not a reason to set realistic financial goals?

So you have something to refer to every time you get paid

Which of these statements is true with regards to the 2008-2009 financial crisis? -The values of many homes were cut in half or more. -More than half of the people in the United States lost their jobs. -Having a financial plan is of no help when economic conditions are as weak as they were during the crisis. -The values of most investments declined by no more than 10%

The values of many homes were cut in half or more

Which of the following is not a liquid asset?

Corporate stock you own outright

Which of the following will not increase your net worth?

Country club dues paid monthly

________ management involves decisions regarding how much credit you need to support spending and which sources of credit to use.

Credit

At which time do cash inflows tend to be the highest?

20 years into a career

Nancy has $40,000 of annual disposable income and saves $8,000 a year. Her savings rate is

20%

Which of the following is not considered an asset for a family?

A leased car

Which of the following would not be considered an investment?

A membership in a golf or swim club

Cash inflows can include -All of these are cash inflows. -dividends. -interest income. -income.

All of these are cash inflows

On which of the following Web sites should you question the accuracy of the information provided?

An online blog posts articles written by many individual investors

Your net worth will not be increased by which of the following actions?

Buying a new home entertainment system and putting the entire amount on your credit card

Which of the following would be classified as a short-term goal?

Buying new clothes this month

Which of the following is not a cash inflow?

Car payment

Cash flows are affected by financial planning decisions. Which of the following is correct?

Car payments you make are cash outflows.

Which of the following is not a relevant consideration when identifying alternatives for achieving your financial goals?

Choosing a large versus small university

Your decision about one component of your financial plan can affect all other components. Which statement is true? -If you make poor investment decisions, you may have to work longer than planned. -The amount of life insurance you choose to carry has no effect on your future estate value. -You should contribute all of your extra money to your retirement account even if it means you don't have money available for products and services today. -There will never be any trade-offs to consider when making decisions about your financial plan.

If you make poor investment decisions, you may have to work longer than planned.

Which of the following is not an appropriate approach to solving the problem of an annual budget deficiency?

Increase short-term, flexible expenditure items

________ involves having access to funds to cover any short-term cash needs.

Liquidity

Cash flows are affected by financial planning decisions. Which of the following is not correct?

Paying off a loan early is not an outflow since you are reducing a debt.

Which of the following goals would be easiest to measure?

Save $100 a month to create a $4,000 emergency fund

Which of the following would be a long-term goal?

Saving enough money to retire in 20 years

From a financial standpoint when should a person start retirement planning and saving?

When he or she first starts receiving a salary

Which of the following is not a decision involved in managing your financing?

Whether to invest income in a savings account or in a stock

Which of the following usually affects cash flow the most? -Your job skills -All of these -Your personal consumption behavior -The size of your family

all of these

A personal balance sheet summarizes

assets, liabilities, and net worth.

Investment assets include all of the following, except

automobiles.

Property such as a person's home, car, and furniture are called

household assets

Budgeting helps set goals by estimating ________ on a monthly basis to determine how much to save and spend.

income and expenses

To increase your savings,

income must be increased or expenses decreased

If both a husband and wife are employed, their consumption will tend to

increase

Your current liquidity ratio is 2.0. If you take money out of your savings account to pay off a credit card your liquidity ratio will

increase

If your income exceeds the amount you spend, you should ________ your investments or ________ loans.

increase; repay existing

The net worth of an individual or family can be increased by

increasing income without increasing spending.

Goals with a time frame of between one and five years are classified as

intermediate term

Corporate stocks, government or corporate bonds, or mutual funds, are called

investment assets

Which of the following statements about stocks is not true?

investments in stocks are considered liquid assets

When estimating expenses for a budget,

large unusual expenses such as car or hospital bills should be included.

Student loans, auto loans, and housing loans are good examples of

long-term liabilities.

Potential investments include all of the following instruments, except

lottery tickets.

Cash inflow can be increased by all of the following, except

making credit card payments

Balance sheet assets should be valued at

market value

The amount you would receive if you sold an asset today is called the asset's

market value

After your financial plan is developed it should be

monitored and updated annually.

An investment company that sell shares to individuals and then invests the proceeds in stocks or bonds is called a

mutual fund

Another term for your wealth, calculated by deducting the amount that you owe from the value of the things you own is

net worth

The difference between assets and liabilities is called

net worth.

Many individuals tend to ________ their cash inflows and ________ their outflows.

overestimate; underestimate

A person's net worth would increase as a result of

reducing amounts owed to others.

A budget does not

require the preparation of a will.

Which cash inflow is more likely to be discontinued after retirement?

salary

Liabilities can be calculated by

subtracting net worth from assets