Financial Health

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The common thread among investment assets is that

they are purchased for the purpose of generating wealth.

Cameron has​ $17,000 in monetary assets and​ $4,000 in current liabilities. What is his current​ ratio?

​17,000/4,000

According to the Keown​ book, an emergency fund consists of liquid assets that are sufficient to cover​ ________ of expenditures.

3 to 6 months

Patty has​ $9,000 in monetary​ assets, annual living expenses of​ $36,000, a​ $12,000 car loan​ balance, and​ $45,000 in equity in her house. What is her​ month's living expenses covered​ ratio?

3.0 times

Sarah has​ $15,000 in monetary​ assets, $48,000 in annual living​ expenses, a​ $20,000 balance on her car​ loan, and​ $60,000 of equity in her house. What is her​ month's living expenses covered​ ratio?

3.75 times

The first section of a balance sheet represents your

Assets

Which of the following statements describe the importance of a​ budget?

A​ well-planned budget accurately matches a​ household's abilities with its financial goals, With a​ well-planned budget, money will seem to go farther and he will be able to do more with what he has, A​ well-planned budget prepares someone for the future and the unforeseen events that the future holds.

Which type of expenditure would probably be the hardest for an individual to​ track?

Cash

Which of the following financial documents would you to use to create a financial​ plan?

Cash budget, Income statement, Balance sheet, Budget All of the above

Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the​ ________ ratio.

Current

Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money​ emergencies?

Current ratio

Your​ ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity.

Current ratio

Your​ ________ is found by dividing total debt or liabilities by total assets.

Debt ratio

How would an income statement help you create a financial​ plan?

Determines whether you are earning more than you spend

Which questions do financial ratios help you​ answer?

Do I have the ability to meet my debt​ obligations? Am I saving as much as I think I​ am? Do I have adequate liquidity to meet​ emergencies?

Suppose that​ David's only assets are an automobile worth​ $10,000 and a checking account with a​ $5,000 balance. His only liabilities are a student loan balance of​ $12,000 and a balance of​ $9,000 on his car loan. What is his net​ worth?

Doug is currently insolvent with​ $6,000 negative net worth.

Below are several people and their current ratios. If they were to lose their jobs​ today, which one would probably experience financial stress and pressures the​ quickest?

Elmo has a current ratio of 0.5 times.

​A(n) ________ is a reserve or rainy−day fund with money set aside to be used for unexpected expenses or when normal income has been disrupted.

Emergency fund

​________ can be more than or less than the price you paid for a given​ asset, depending on what others are willing to pay for that asset today.

Fair market value

A debt ratio is aimed at determining if you have adequate liquidity to meet emergencies.

False

A vehicle leased in your name is an example of a tangible asset that you would list on your balance sheet.

False

An emergency​ fund, or rainy−day ​fund, is comprised of liquid assets sufficient to cover 3.5 years of expenditures.

False

As long as a financial planner is certified you need not worry about his ability to provide you with the correct financial plan for your situation.

False

Commission−only planners charge fees and collect commissions on products they recommend.

False

Insolvency results from earning more than you spend.

False

Net income is used in calculating​ one's net worth.

False

The house that you are leasing from a landlord is an example of a tangible asset that you would list on your balance sheet.

False

The term​ "fair market​ value" refers to how the price of an asset has changed since its original purchase.

False

To determine your net​ worth, subtract your liabilities from your positive net equity.

False

​________ planners charge a fee that is reduced by the amount of the commissions they earn.

Fee-offset

An expenditure over which you have no​ control, are obligated to​ make, and is generally at a constant level each month is called a​ ________ expenditure.

Fixed

An expenditure over which you have no control and are obligated to make is a

Fixed expenditure

An expenditure over which you have control and are not obligated to​ make, and which may vary from month to month is called a​ ________ expenditure.

Flexible

​Hector's month's living expenses covered ratio is 0.25 months. He just broke his leg and will not be able to work for six weeks. Without a paycheck for six​ weeks, what will Hector most likely​ experience?

He may have to liquidate some of his tangible or investment assets to keep current on his monthly bills, He may have to borrow some money to keep current on his monthly bills

A statement that records where your money has come from and where it has gone over some period of time is called​ a(n)

Income statement

If your liabilities are greater than the value of your assets you are considered

Insolvent

Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called

Investment assets

Jorge has a debt ratio of 37 percent and Jose has a ratio of 102 percent. They both have the same take−home pay every month. How can we describe their current financial​ situation?

Jose probably​ doesn't have much money available to enjoy every month, Jorge is currently solvent, Jose is currently insolvent, Jorge probably has more money available to enjoy every month. All of the above

Items on the balance sheet that represent amounts owed to others are termed

Liabilities

Which of the following would be included on a personal income​ statement?

Making a payment to your credit card company

Your​ ________include cash, checking and savings account​ balances, and money market funds.

Monetary assets

Which of the following are not typically found on a balance​ sheet?

Mortgage interest payments, Interest earned on a CD

Which of the following items would not be included on a balance​ sheet?

Mortgage payment paid

Suppose that you were trying to determine how much income was available for future monetary needs as well as for investments. Which of the following ratios would you most likely​ use?

Savings ratio

Suppose that you have been operating an online marketing business out of your​ home, and the business has recently expanded beyond belief. Since you have neglected your personal finances for some​ time, what would you do as a first​ step?

Separate your personal finances from the business finances.

A physical asset such as a high−​definition, flat−screen TV or a Harley Davidson motorcycle is called​ a(n)

Tangible asset

Bradley went shopping today and used his American Express credit card to buy a new pullover sweater. He used his bank debit card to pay for a video game and bought some snack food with cash. Which of these purchases are difficult to track and monitor on his​ budget?

The snacks are difficult to track because cash transactions​ don't leave a paper trail.

A successful budget can only be derived from accurate record​ keeping.

True

An estimate of your anticipated after−tax income available for living expenses is commonly called take-home pay.

True

An income statement tracks the amount of money you have coming in and going out over some period of​ time, such as a month or a year.

True

Before you can hope to achieve your financial​ goals, you will need to first measure your current financial health and develop a plan and a budget.

True

Current liabilities are those that can typically be paid off in full within 12 months.

True

Having negative net income every once in a while is not such a bad thing as long as you have planned for it.

True

In some cases insolvency can lead to bankruptcy.

True

The interest charge on your credit card statement should be listed on your personal income statement as a variable expense.

True

To calculate your net​ worth, subtract your total debt from your total assets.

True

Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet.

True

An expenditure that you can control over time and that you can manage is​ a(n)

Variable expenditure

The term​ "fair market​ value" refers to

What an asset could be sold for today

Which of the following is a relevant question to ask a financial​ planner?

What are your credentials and professional​ designations?Would you provide us with​ references? Will you provide us with a written estimate of your services and their​ cost? Would you show us a similar financial plan you have done for someone​ else? All of the above

Under what conditions should people hire a professional financial​ planner?

When they run into complex tax or legal issues, When they need someone to improve or validate the plan they prepared themselves, When they start receiving late payment penalties from their creditors,When it is apparent their financial planning skills are limited All of the above

Your financial situation is insolvent when

Your assets are less than your liabilities

What would happen to your net worth if you sold a tangible asset you owned for​ $1,000 and used the money to pay off your credit card balance for​ $1,000?

Your net worth would remain the same.

When measuring your current financial health it is important to create

a personal balance sheet, an income statement.

A plan for controlling and forecasting your cash inflows and cash outflows is called​ a(n)

cash budget.

Planning and budgeting requires

control, discipline., financial restraint. all of the above.

Practical uses of an income statement include

determining if money is available for saving or investing, spotting problem areas of overspending, knowing where your money is going, determining whether you are spending more than you earn. all of the above

Liabilities are best described as

financial debts and obligations that you owe.

The current ratio is a measure of liquidity that reflects

how many times you can pay off your current liabilities by using your liquid assets.

When including an asset such as a car on your balance sheet

list its current value as indicated in a blue book or site like www.edmunds.com.

A personal income statement is prepared

on a cash basis, based on actual cash flows.

Your net​ worth, or your general level of financial​ worth, is found by

subtracting your liabilities from your assets.

Suppose that​ Jacob's assets include a motorcycle worth​ $12,000 and a checking account with a​ $3,000 balance, while his liabilities include a credit card balance of​ $4,000 and a motorcycle loan balance of​ $7,000. What is his net​ worth?

$4,000

Suppose that​ Cathy's assets include an automobile worth​ $10,000 and a checking account with a​ $5,000 balance, while her liabilities include a student loan balance of​ $2,000 and a car loan balance of​ $8,000. What is her net​ worth?

$5,000

Alysha has​ $500 in monetary assets and​ $5,000 in current liabilities. What is her current​ ratio?

.10 times

A strong record−keeping system allows you to

.know where​ you're spending your financial resources, know exactly how much​ you're spending, track expenses.

Henry currently has​ $1250 in monetary assets and also has​ $1250 in current liabilities. What is his current​ ratio?

1 time

The purpose of using financial ratios is to

better understand how you are managing your financial resources, help analyze your raw data to compare how well you are doing.


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