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FIN239 - Chapter 2 Practice Quiz

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20 views3 pages

FIN239 - Chapter 2 Practice Quiz

Uploaded by

ththao.ng03
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 2.

1. The personal balance sheet describes a family's wealth


a. at a certain point in time.
b. as an annual summary.
c. as a time period less than one year.
d. at a future time.
e. none of these.
2. The main purpose of a budget is to
a. develop goals.
b. develop a financial plan.
c. give feedback to the plan.
d. monitor and control financial outcomes.
e. revise goals.
3. Net worth is measured by
a. bank card balances.
b. house mortgage balances.
c. amount owed on an automobile loan.
d. assets minus liabilities.
e. insurance premium.
4. When Phil lists his house on his personal balance sheet, he should record the
a. actual purchase price.
b. replacement value.
c. insured value.
d. sale price.
e. fair market value
5. Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If
their revolving credit and unpaid bills total $2,200, what are their total
liabilities?
a. $115,000
b. $112,800
c. $142,200
d. $165,000
e. $167,200
6. The income and expense statement is specific to
a. one point in time.
b. a specific period of time
c. last year.
d. next year.
e. none of these.
7. If your income and expense statement shows a cash deficit, you may have
a. increased your debts.
b. increased your assets.
c. added to savings.
d. bought additional insurance.
e. paid off some of your debts.
8. If your total liquid assets equal $50,000 and your total current debts equal
$15,000, your liquidity ratio is
a. 30%.
b. 70%.
c. 143%.
d. 233%.
e. 333%.
9. Kim's net worth is $85,000 and her total assets are $100,000. What is Kim's
solvency ratio?
a. 15%
b. 25%
c. 65%
d. 85%
e. 100%
10. Your total cash income is $40,000. You pay $5,000 in taxes and $30,000 in
other expenses. Your savings ratio is
a. 7.5%.
b. 10.0%
c. 12.5%.
d. 13.3%.
e. 14.3%.
11. Jacque's total monthly loan payments are $1,020 while her gross income is
$3,000 per month. What is her debt service ratio?
a. 34%
b. 43%
c. 50%
d. 75%
e. 82%
12. Your car has a market value of $10,000 while the balance of the loan against it
is now $2,500. You will list this car in the assets section of your personal
balance sheet at:
a. $7,500.
b. $10,000.
c. $2,500.
d. None of these.
13. You bought a $500 stereo on the installment plan and made two payments of
$75 during the year. On your income and expense statement for the year, you
will show an expense of:
a. $150.
b. $75
c. $500.
d. $250.
e. None of these.

Using future or present value techniques to solve the following questions.

14. If you inherited $45,000 today and invested all of it in a security that paid a 7%
rate of return, how much would you have in 25 years?
15. You forecast that in 15 years, it will cost $190,000 to provide your child with a
4-year college education. Will you have enough if you take $75,000 today and
invest it for the next 15 years at 4%?
16. If you can earn 4%, how much will you have to save each year if you want to
retire in 25 years with $1 million?
17. If you’ve successfully accumulated $500,000 for retirement and want to make
equal annual withdrawals over the next 20 years while earning 6%.

18. Jessica Adams is 21 years old and has just graduated from college. In
considering the retirement investing options available at her new job, she is
thinking about the long-term effects of inflation. Help her by answering the
following related question:
If long-term inflation is expected to average 4% per year and you expect a
long-term investment return of 7% per year, what is Jessica’s long-term
expected real rate of return (adjusted for inflation)? Be sure to consider the
important impact of compounding.

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