Chapter 2 Study Guide Questions

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If I had cash income of $50,000 and expenses of 48,000 - what would be my cash surplus amount?

$2,000 is Cash Surplus

Calculate the net worth: Assets = $225,000, Liabilities = $175,000 Net Worth =

$50,000

A cash budget has value only if you:

1. You use it !!! 2. You keep careful records of your income and expenses

Using Appendix A, what is the future value an investment of $7,000 in 5 years at 3 %?

1.159 $7,000 x 1.159 = $8,113

Using Appendix D, calculate the present value of an annuity if you would be willing to pay up front that will pay $800 a year for 5 years and earning a 5% return?

4.329 $800 / 4.329 = $184.80

Using Appendix B, what is the future value of an annuity of $40,000 in 5 years while earning an interest rate of 5%?

5.526 $40,000 / 5.526 = $7,238.50

What is the formula for future value?

Amount invested x future value factor

True or False: Preparing an income and expense statement answers the question "where did my money go".

True

How often should you prepare your personal balance sheet at least __________.

once a year, but preferably every 3-6 months.

If I had cash income of $50,000 and expenses of $53,000 - what would be my cash deficit amount?

-$3,000 is Cash Deficit

Using Appendix C, calculate the present value of a retirement fund of $500,000 in 20 year at a rate of 3%?

0.554 $500,000 x 0.554 = $277,00

Explain the 50/30/20 rule:

1. 50% of living expenses and needs. 2. 30% of flexible spending/Wants. 3. 20% of saving/investing .

What are the names of the 4 Appendix tables:

1. Appendix A-Future Value 2. Appendix B-Future Value Annuity 3. Appendix C-Present Value 4. Appendix D-present Value of Annuity

A Balance Sheet has 3 parts. Explain each part:

1. Assets. 2. Liabilities. 3. Net Worth.

The cash budget preparation process has three stages. What are they:

1. Forecasting (predicting) income. 2. Estimating Expense. 3. Finalizing the Cash Budget.

A cash budget is a valuable money management tool that helps you:

1. Helps you maintain necessary information to monitor/control financial. 2. Helps you to decide where income goes to reach goals. 3. Helps you keep disciplined spending habit-waiting for the next paycheck. 4. Reduce unnecessary spending: increase investments. 5. Archive long term financial goal.

What are the five categories of household expenditures (costs):

1. Housing. 2. Transportation. 3. Food. 4. Personal Insurance pension. 5. Health Care.

What are 5 ways to spend less?

1. Make a budget and use it to set financial goals. 2. Use your savings account first and checking account last. 3. Spend Cash-Don't Depend on credit cards . 4. Have someone hold you accountable. 5. THINK before you buy, consider alternative.

Four important money management ratios are:

1. Solvency Ratio. 2. Liquidity Ratio. 3. Savings Ratio. 4. Debts Ratio.

What is the formula for yearly savings?

Future amount of money desired / Future value of Annuity Factor


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