Personal Finance: Topic 1

Catherine Jones 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 $119,000. 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 mutual fund worth $5,500 and she has a retirement account worth $38,550. What is the value of her real estate assets?

$119,000

Jamie McFarland 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 $5,700 and the value of her long-term liabilities is $89,000. What is Jamie's net worth?

$172,800 Explanation: Net worth = Value of assets - Value of liabilities; ($4,500 + $128,000 + $62,000 + $73,000) − ($5,700 + $89,000) = $172,800

Patricia McDonald has determined the following information about her own financial situation. Her checking account is worth $545 and her savings account is worth $1,000. She owns her own home that has a market value of $119,000. She has furniture and appliances worth $8,500 and a laptop worth $1,200. She has a car worth $9,700 and owes $8,200 on her auto loan. She has also purchased some stock worth $5,500 and she has a retirement account worth $27,655. What is the total value of her assets?

$173,100 Explanation: Total Assets = $545 + $1,000 + $19,000 + $8,500 + $1,200 + $9,700 + $5,500 + $27,655 = $173,100.

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of:

$28,000. Explanation: Assets − Liabilities = Net worth; $50,000 − $22,000 = $28,000

A family has a net worth of $165,000 and liabilities of $176,000, what is the amount of their assets?

$341,000 Explanation: Net worth = total assets - total liabilities; therefore, total assets = net worth + total liabilities = $165,000 + $176,000 = $341,000.

Jamie McFarland 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 $5,700 and the value of her long-term liabilities is $89,000. What is the total value of her debts?

$94,700 Explanation: The total value of Jamie's debts would include the value of her current and long-term liabilities. $5,700 + $89,000 = $94,700

The Fram family has liabilities of $171,000 and assets of $344,000. What is their debt ratio? (Round your answer to 3 decimal places.)

0.5 Explanation: Debt ratio=Liabilities / Assets =$171,000 / $344,000 =0.497

Financial experts recommend monthly savings of:

5 to 10 percent.

Carl Lester has liquid assets of $2,740 and current liabilities of $1,550. (a) What is his current ratio? (Round your answer to 1 decimal place.) Which comment best describes his financial position? O Higher than the desirable ratio 2.0 O Equal to the desirable ratio 2.0 (X) Lower than the desirable ratio 2.0 Correct

Current ratio: 1.8 Explanation: (a) Current ratio=Liquid assets / Current liabilities =$2,740 / $1,550 =1.8 (b) A current ratio of 1.8 is generally viewed as less than desirable.

Bill and Sally Kaplan have an annual spending plan that amounts to $40,000. If inflation is 4 percent a year for the next three years, what amount will the Kaplans need for their living expenses three years from now? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to the nearest whole number.)

FV=PV × FV single sum table factor =$40,000 × 1.125 =$45,000

Determining your current financial situation is a part of which step in the financial planning process?

First

Which one of the following cash outflows should be listed first on a Cash Flow Statement?

Fixed expenses

Fran Bowen created the following budget: Budget: Food: $364 Clothing: $164 Transportation: $408 Personal expenses and recreation: $307 Housing: $994 She actually spent $331 for food, $416 for transportation, $1,046 for housing, $161 for clothing, and $259 for personal expenses and recreation. Calculate the variance for each of these categories, and indicate whether it was a deficit or surplus. (Input all amounts as positive values.)

Food: $33 Surplus Transportation: $8 Deficit Housing: $52 Deficit Clothing: $3 Surplus Personal expenses and recreation: $48 Surplus Explanation: Surplus (deficit)=Budgeted amount - Actual amount Food=$364 - 331 =$33 Transportation=$408 - 416 =-$8 Housing=$994 - 1,046 =-$52 Clothing=$164 - 161 =$3 Personal expenses and recreation=$307 - 259 =$48 When the actual amount is less than the budgeted amount, you have a surplus. A deficit occurs when the actual amount exceeds the budgeted amount.

The advantages of personal financial planning include:

Increased effectiveness in obtaining, using and protecting your financial resources, Increased control of your financial affairs by avoiding excessive debt and bankruptcy, Improved personal relationships resulting from better communicated financial decisions

One of the main purposes of a budget is to help you:

Live within your income.

Sophia Martin's goal has been to travel around the world. She has now been traveling for six months and she has decided she is a little tired of living out of a suitcase. She has decided to go home, look for a part time job, and take shorter trips to locations around the world that appeal to her. Which step in the financial planning process does this scenario most likely demonstrate?

Reviewing and revising her financial plan

A common deduction from a person's paycheck is for:

Social Security taxes.

Based on the following data, compute the total assets, total liabilities, and net worth. Balance Sheet: Liquid assets $5,010 Household assets $99,600 Investment assets 15,100 Long-term liabilities 79,400 Current liabilities 2,710

Total assets=Liquid assets + Investment assets + Household assets =$5,010 + 15,100 + 99,600 =$119,710 Total liabilities=Current liabilities + Long-term liabilities =$2,710 + $79,400 =$82,110 Net worth=Total assets - Total liabilities =$119,710 - $82,110 =$37,600

The earnings you receive as a saver or an investor reflect:

a risk premium based on length of the savings period

For each of the following situations, compute the missing amount. Balance Sheet: a. Assets: $54,000 Liabilities: $17,100 Net Worth: $______ b. Assets: $77,700 Liabilities: $____ Net Worth: $13,800 c. Assets: $47,300 Liabilities: $17,500 Net Worth: $____ d. Assets: $____ Liabilities: $44,700 Net Worth: $ 54,200

a. Net worth=Total assets - Total liabilities =$54,000 - 17,100 =$36,900 b. Total liabilities=Total assets - Net worth =$77,700 - 13,800 =$63,900 c. Net worth=Total assets - Total liabilities =$47,300 - 17,500 =$29,800 d. Total assets=Total liabilites + Net worth =$44,700 + 54,200 =$98,900

A budget deficit would result when a person's or family's:

actual spending is greater than planned spending.

Liabilities are amounts representing:

debts owed now.

When it comes to savings, most Americans:

find saving difficult.

Payments that do not vary from month to month are ____________ expenses.

fixed

Robo-advisors, 3-D printing, robotics, wearable technology, and other innovations will influence your financial decisions in the following ways, except:

how you travel

The risk premium you receive as a saver is based:

in part on the uncertainty associated with getting your money back and the expected rate of inflation.

If you are concerned about year-end tax payments and need an action plan, you may take the following action(s):

increase the amount withheld from each paycheck, file quarterly tax payments, shelter current income in a tax-deferred retirement program, invest in tax-exempt securities

Kathy Thompson has determined that the value of her assets is $64,000 and the value of her debts is $23,000. The difference between these two is $41,000. The $41,000 could be referred to as her:

net worth.

A person's net worth is computed by:

subtracting total liabilities from total assets.

In most societies, the forces of ______ set prices for securities, goods, and services.

supply and demand