Presentation Transcript

1. Chapter 2 & 3 Test Review

   Study! Study! Study!
2. True or False? A personal financial plan focuses on how to accumulate and grow wealth, but it will not help you provide for unanticipated financial emergencies. When creating a budget it is important to take the impact of state and federal taxes on income into consideration. Net Worth is determined by subtracting your liabilities from your income. Assets plus equity equals a person’s net worth. Another word for debt is liability.
3. True or False? Liquidity and Net worth mean essentially the same thing. You can increase your assets by increasing your net worth or increasing your liabilities. Liquid assets include cash and assets that can be quickly and easily turned into cash. In order to avoid cash shortfalls, you need to keep an adequate amount of money liquid. Long-term financing that you might use to borrow money for a car or house is usually available at the same interest rates that credit cards offer.
4. True or False? A lender will not loan you more money than you can afford to borrow. Cash inflow refers to money received from income but not other sources. Kara’s monthly car insurance bill is an example of a variable expense. Fixed expenses remain the same from time period to time period.
5. Multiple Choice The purpose of a budget is to plan your spending and saving, considering your income level, so that you can meet your ______________. Needs and wants Immediate needs Long-term dreams Intermediate financial goals Which of the following is NOT a step in creating a budget? Establishing net worth Identifying expenses Prioritizing financial goals Considering the effect of taxes
6. Multiple Choice The process of forecasting future expenses and incomes is called _______________. Personal financial planning Liability analysis Equity Assessment Budgeting Net worth is determined by subtracting an individual’s liabilities from his or her ____________. Income Equity Assets Liquidity
7. Multiple Choice Wages earned an allowance are two types of… Income Equity Liabilities Interest For most US consumers, the biggest expense is ______________. Health care Food Transportation Housing
8. Multiple Choice If you find that you don’t have enough money on hand to cover your immediate needs, then you need more _________________. Liquidity Liabilities Interest Assets People without enough ___________ often use __________ to cover immediate shortfalls, but this approach can be very costly. Assets; interest Equity; Assets Liquidity; credit Income; equity
9. Multiple Choice A good way to think about _______________ is rent charged on borrowed money. Equity Debt Liabilities Interest Payment schedules for most long-term loans involve ___________ payments. Weekly Monthly Daily Yearly
10. Multiple Choice Credit Card financing is usually available ___________ a borrower than longer-term financing for a major purchase. At a lower cost to At a higher cost to At the same cost to With a greater down payment from Without insurance on a major purchase, the owner assumes all of the ________. Equity Asset Risk Investment
11. Multiple Choice Stocks, bonds, mutual funds, and real estate are all common types of ________________. Liabilities Liquid assets Investments Insurance Why do people invest money? To insure their assets To make more money To increase their liquidity To increase their equity in major purchases.
12. Multiple Choice Money that an individual spends is referred to as __________________. Cash inflow Liquidity Investment Cash outflow Financial goals that you plan to accomplish within the next year should be categorized as _______________ goals. Optional Short-term Intermediate-term Long-term
13. Multiple Choice After keeping track of his income and expenses for two months, Ellis made predictions about his monthly cash inflows and outflows for the next year. Ellis made a(n)__________. Short-term goal Long-term goal Forecast Balance Sheet Which of the following is least likely to be part of an individual's financial forecast? Assets Variable expenses Fixed expenses Income
14. Multiple Choice Savings accounts, scholarships, and jobs are all potential sources of ______________. Expenses Income Assets Investments To make a financial forecast, it is most important to evaluate and make predictions about your __________. Assets Debt Cash flows Wages
15. Multiple Choice Michelle wants to minimize any possibility of loss. Michelle has a low tolerance for ________. Forecasting Investing Risk Financial analysis A financial plan with a higher level of risk is likely to also have _____________ than a financial plan with a lower level or risk does. A lower porential payoff A higher potential Payoff A more certain potential payoff Fewer drawbacks