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