Personal Finance Literacy (Madura/Casey/Roberts)



Personal Financial Literacy

Chapter 4 Review: Budgets and Balance Sheets — Your Personal Financial Statements

1) Which of the following is likely to have the SMALLEST affect on an individual's cash outflows?

A) family size

B) age

C) ethnicity

D) personal spending habits

2) A good budget will force you to ________ to take advantage of unexpected opportunities.

A) rely on credit cards

B) reject long-term financing

C) set aside money

D) increase your income

3) A(n) ________ can help you save money for major purchases, unexpected expenses, and unexpected opportunities.

A) personal cash flow statement

B) budget

C) liability

D) net worth

4) Which of the following would you most likely use to assess the accuracy of your budget?

A) a list of personal financial goals

B) a personal balance sheet

C) an expense journal

D) a net worth analysis

5) The difference between what you forecast to happen and what actually happened is referred to as ________.

A) forecast error

B) forecast liability

C) cash outflow

D) cash inflow

True/False

6) A cash flow statement is a forecast of future cash inflows and outflows.

7) Identifying your current cash inflows and outflows is the first step in the budgeting process.

8) Creating a budget involves forecasting your net cash flows.

9) Your budget should account for expected but irregular expenses, such as vacations and birthdays.

10) The most effective and easy-to-follow budgets do not vary from month to month.

11) Turning a personal cash flow statement into a budget for an entire year requires precision and accuracy.

12) It is possible to adjust your budget once you have started to use it.

13) Your budget should help you anticipate future cash shortfalls.

14) To assess the accuracy of your budget, you should compare cash flow forecasts for each month.

Match each description to its corresponding term.

A) budget

B) personal cash flow statement

C) forecast error

D) personal balance sheet

18) the difference between your predicted cash flows and your actual cash flows

19) a forecast of your future cash inflows and outflows

20) a record of your incoming and outgoing money

21) Gretchen has a part time job waiting tables at a restaurant, where she earns an hourly wage plus tips. When she made her budget for the month of April, Gretchen's forecast was that she would make $600 for the month. However, Gretchen worked two extra Sunday morning shifts during the month, so she ended up earning $725. What is Gretchen's forecast error for her cash inflows in April?

1) After all of her expenses, Sarabeth typically has $100 to $150 left over each month. Sarabeth wants to decide how to spend this surplus. Which of the following tools would help Sarabeth the most?

A) an expense journal

B) a personal balance sheet

C) a budget

D) a personal cash flow statement

2) While a ________ tracks cash flows over time, a ________ shows an individual's financial position at a point in time.

A) budget; personal balance sheet

B) personal balance sheet; budget

C) personal cash flow statement; net worth

D) net worth; personal cash flow statement

3) Which of the following is NOT a typical asset listed on a personal balance sheet?

A) investments

B) liquid assets

C) cash inflows

D) household assets

4) Christine is creating a personal balance sheet and has begun classifying her assets. Which of the following should Christine classify as a liquid asset?

A) her checking account

B) her car

C) her real estate investments

D) her mutual fund

5) The defining characteristic of a liquid asset is its ________.

A) ability to earn interest

B) market value

C) quick availability

D) diversification

6) To figure your personal balance sheet, you would need to conduct research to estimate the market value of your ________.

A) stocks

B) bonds

C) liquid assets

D) household assets

7) To determine the market value of your car, you would be most likely to use which of the following as a guideline?

A) listings on the Ebay website

B) listings on the Kelley Blue Book website

C) the price of other recently sold cars in your neighborhood

D) the price you originally paid for the car

8) A(n) ________ is a promise to repay a certain amount of money at some future time.

A) investment

B) stock

C) mutual fund

D) bond

9) People purchase ________ in a company in hopes that the company will do well and their investment will increase in value.

A) stocks

B) bonds

C) mutual funds

D) liquid assets

10) If you are unsure about investment selections and want the expertise of a professional portfolio manager, you should invest in ________.

A) liquid assets

B) mutual funds

C) Series EE savings bonds

D) individual stocks

11) Most ________ typically require a minimum investment ranging between $500 and $3,000.

A) mutual funds

B) interest-earning savings accounts

C) stocks

D) Series EE savings bonds

12) Which of the following types of investments offers an investor the most protection from a severe drop in the value of an investment?

A) stocks

B) bonds

C) mutual funds

D) real estate

13) Which of the following are commonly used as investments for Section 529 College Savings Plans?

A) savings accounts

B) stocks

C) liquid assets

D) mutual funds

14) Homes, rental property, farms, and timberland are all examples of ________.

A) mutual funds

B) liquid assets

C) real estate investments

D) household assets

15) Current and long-term liabilities represent which of the following?

A) a person's total debt

B) the debt a person must pay off within one year

C) a person's credit card debt

D) a person's net worth

16) The most common form of current liability for individuals is a ________.

A) car loan

B) home mortgage

C) student loan

D) credit card balance

17) You should use a credit card as a(n) ________, not a(n) ________.

A) long-term liability; current liability

B) current liability; long-term liability

C) liquid asset; investment

D) investment; liquid asset

18) Figuring your net worth is an easy way to measure your ________.

A) liquidity

B) wealth

C) market value

D) investments

19) Lenders often use the ________ ratio to determine whether someone has enough wealth to repay debt.

A) income-to-debt

B) debt-to-asset

C) cash inflow-to-cash outflow

D) asset-to-liability

True/False

20) A personal cash flow statement is a summary of an individual's assets, liabilities, and net worth.

21) Net worth is the figure used to track an individual's overall wealth.

22) Any asset can be quickly and easily converted to cash.

23) A liquid asset should be used to make money through the accumulation of interest.

24) Liquid assets typically make up a larger proportion of a person's balance sheet than household assets do.

25) The majority of teenagers accurately forecast the average annual salary they will earn in their twenties and thirties.

26) One way to increase your net worth is to possess assets that increase by more than the value of your liabilities.

27) A low debt-to-asset ratio is an advantage for someone who is seeking a loan.

Match each term to its corresponding definition.

A) household asset

B) stock

C) mutual fund

D) liquid asset

E) bond

28) an object or home that could be sold for market value

29) a certificate that functions like an IOU

30) a variety of financial assets managed by a professional

31) a certificate representing fractional ownership of a company

32) cash or an asset that can be quickly converted to cash

Match each description to its corresponding term.

A) net worth

B) personal cash flow statement

C) personal balance sheet

33) the difference between your assets and your liabilities

34) a summary of your assets and your liabilities

Classify each example as a liquid asset, investment, or household asset.

A) household asset

B) investment

C) liquid asset

35) government bond

36) savings account

37) a car

38) a flat-screen TV

39) mutual fund

40) checking account

41) Justyna is working on a personal balance sheet. She has $575 in a checking account, $650 in a savings account, $500 in government bonds, and $1,400 in stocks. How much does Justyna have in investments?

42) Sal has invested in two different stocks over the past few years. He has 22 shares of Company A's stock, which is currently selling at $45 per share. He also has 130 shares of Company B's stock, which is currently selling at $75 per share. What is the total value of Sal's stock holdings?

52) To determine his net worth, Afzal has gathered information on all of his assets and liabilities. He has $4,350 in household assets, $400 in liquid assets, and Series EE bonds currently worth $785. Afzal's only liability is the remaining balance of his car loan, which is $1,250. What is Afzal's net worth?

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