personal finance chapter two

at what time is cash inflows tend to be the highest

20 years into a career

budget

a cash flow statement that is based on forecasted cash flows for a future time period

personal cash flow statments

a document that shows your cash inflows and outflows

which of the following is not considered an asset for a family

a leased car

cash in a savings account

a liquid asset

A high debt ratio indicates

an excessive amount of debt and should be reduced over time to avoid any debt repayment problems.

expenses

are also cash outflows

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

the personal cash flow statement measures

cash inflows and outflows

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 liquid asset

corporate stock you own outright

which of the following will not increase your net worth

country club paid monthly

cash flow statements reports

current income and payments

if you sell stock from your portfolio to pay off your car loan, your debt ratio of .5 will

decrease

paying cash for a cruise will

decrease assets

net cash flows

difference between cash inflows and cash outflows and can be negative or positive

education level

does not affect cash outflows

Stocks are considered liquid assets since they are easy to sell without a loss in value.

false

liquid assets

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

bonds

financial instruments issued by borrowers to raise funds

a budget will not

help determine if cash outflows will be sufficient enough to cover cash inflows

both husband and wife are employed, their consumption tends to

increase

what is not an appropriate approach to solving the problem of an annual budget deficiency

increase short-term, flexible expenditure

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

increasing income

when you retire, which of the following will be key sources of cash flows

interest and dividends, and also social security and 401k

cash in your wallet, checking account, and savings account comprise

liquid assets

liquidity ratio

liquid assets/liabilities

the primary goal of financial planning

maximize wealth

Paying off a credit card with cash will have which of the following effects on net worth?

no effect

many people tend to _______ their cash inflows and _____ their cash outflows

overestimate and underestimate

which of the following is not a true statement about mutual funds

proceeds are only invested in stocks

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

reduced amounts owed to others.

real estate

rental property and land

which cashflow will be discontinued after retirement

salary

main source of cash flow for most people is

salary and wages

investment assets

when a person owns corporate stock, government or corporate bonds, or mutual funds

a low liquidity ratio means that

you probably will have trouble paying your current bills

what usually affects cash inflows the most

your job skills

David's liquidity ratio is 3.0. He has $1,000 in current liabilities. Therefore, he has ________ worth of liquid assets. A) $3,000 B) $333 C) $4,000 D) $700

3,000

If Kim's current debt ratio is 45%, this means that ________ of Kim's assets are purchased on credit.

45%

if your net cash flows exceed your net cash outflows, you can increase your net worth by investing the difference in more

assets

a persons balance sheet summarizes

assets, liabilities, and net worth

In budgeting, it is useful to compare ____ with the budgeted amounts to determine the accuracy or error of the budget and adjust it as necessary.

both actual cash inflows and outflows

current liabilities

debts that are to be paid off within a year

You save the same dollar amount from each paycheck during your career. as your income increases, your savings rate will

decrease

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

chang investments from risky stocks to more conservative stocks

is not a key budgeting influence for a personal financial plan

inventory

is not an asset you might find on a personal balance sheet

household assets

items owned by a household such as a home or car

what would increase your liquid assets

making regular deposits to a savings account at your bank

balance sheet assets should be valued at

market value

savings rate calculated

savings/ disposable income

why is it important to monitor your debt level

so it does not become so high that you cannot cover the monthly payments

liabilities can be calculated by

subtracting net worth from assets

balance sheet

summary of assets, liabilities, and net worth

market value

the amount you would receive if you sold an asset today

personal cash flow statements are usually the starting point for an individual or family's budget

true

your net worth can change even if your net cash flows are zero

true

a personal balance sheet presents

Items owned and amounts owed