Emergency Fund Planning

Question 1

Purchasing a small part of the company

Answer 1

Common Stocks

Question 2

Treasury bills and other very short-term notes

Answer 2

Money Market Mutual Funds

Question 3

Limited holdings in cash, bond, and short-term investments

Answer 3

Stock Mutual Funds

Question 4

What are characteristics of bond issuers?

Answer 4

Generally a corporation, city or a state.
Uses the money loaned.
Pays the interest.

Question 4

what makes stocks are marketable?

Answer 4

No difficulty in selling them.
Secondary markets extremely well developed.

Question 5

Money Market Mutual Funds:

Answer 5

These investments are generally regarded as practically risk-free because they have a short maturity period.

Question 6

Stock Mutual Funds:

Answer 6

These funds don’t just hold stocks. They do have some limited holdings in cash, bonds, and short-term investments (such as those in money market mutual funds). But their main emphasis is indeed firmly on stocks.

Question 7

Stocks:

Answer 7

The possible returns on stock investments are high and so also are the accompanying risks, however they generate returns precisely the same way your own business does.

Question 8

____ reduce risk through diversification and produce steady current income. They can be a safe investment to serve as emergency funds.

Answer 8

Bonds

Question 9

What are alternatives to checking, NOW accounts, and savings accounts for holding emergency funds

Answer 9

Money Market Mutual Funds
Stocks
Bonds
Stock Mutual Funds

Question 10

Sources of Emergency Funds can include

Answer 10

checking, Negotiable Order of Withdrawal (known as a NOW account), passbook savings

Question 11

How much should you hold in an emergency fund

Answer 11

3 to 6 months but perferrably 6

Question 12

How to determine liquidity?

Answer 12

Liquid assets to take-home pay ratio = liquid assets/ take-home pay
Liquid Ratio= Liquid Assets ÷ Current Liabilities

Question 13

_____= Liquid Assets ÷ Current Liabilities

Answer 13

Liquid Ratio

Ratio to consider the level of existing liabilities
Larger the number the better liquidity. Needs to be over 1.0

Question 14

Liquid assets to take-home pay ratio = ______

Answer 14

liquid assets/ take-home pay

Question 15

What are the most important aspects of liquid assets?

Answer 15

1. act as a shock absorber in crisis situations
2. liquid assets may cover unforeseen expenses outside the budget and helps prevent compromising long-term investments.

Question 16

The emergency fund should contain assets if not cash, should be _____ and _____.

Answer 16

“marketable” and “liquid”

Question 17

______ refers to the ease in which an asset can be bought or sold while liquidity is the ease in which an asset can be converted to cash with little risk of loss of principal.

Answer 17

Marketability

Question 18

Your ability to _____, with no ______, and with no______ will make the deposit liquid.

Answer 18

withdraw it easily
delays or other complications
loss in principal

Question 19

What factors should you consider when choosing alternatives to Checking, NOW, or savings accounts?

Answer 19

Returns using comparable interest rates,
Tax status, and
Safety or risk

Question 20

What are the advantages of Bonds?

Answer 20

Reduce risk through diversification
Produce steady current income
Safe investment if held to maturity

Question 21

______ is simply a company’s distribution of profits to its stockholders. It can be in the form of cash or additional company stock.

Answer 21

A dividend

Question 22

_____ refers to an increase in the selling price of your shares of stock as the company’s earning prospects improve.

Answer 22

Capital appreciation

Question 23

What are the advantages of Stocks?

Answer 23

Over time, common stocks may outperform many other types of investments.
Common stocks may help reduce portfolio risk through diversification.
Common stocks may be sold quickly and relatively inexpensively.

Question 24

Types of money Amrket Mutal Funds:

Answer 24

Tax-exempt Money Market Mutual Funds
Government Securities Money Market Mutual Funds

Question 25

______ only in very short-term municipal debt. The returns on the funds are exempt from federal taxes, making them popular investments among people in higher tax brackets.

Answer 25

Tax-exempt Money Market Mutual Funds invest

Question 26

______pay a rate slightly lower than traditional money market mutual funds, but in theory are safer.

Answer 26

Government Securities Money Market Mutual Funds

Question 27

_____ invest in Treasury bills and other short-term notes, usually those with maturities of less than 30 days.

Answer 27

Money market mutual funds

Question 28

An adequate emergency fund should have reserves for an appropriate period to cover____ and ____

Answer 28

fixed monthly expenses.
variable monthly expenses.

Question 29

Disadvantages to Bonds:

Answer 29

Low liquidity-penalty for redemption before 5 years
Long maturity
Must wait at least 6 months before re

Question 30

What is not an insured Cash Management alternative?

Answer 30

Money Market Mutual Fund

Question 31

_____ is also known as the current ratio; and the assets and liabilities to compute this ratio are found on the personal Balance Sheet.

Answer 31

Liquid Ratio

Question 32

_____ are issued at a deep discount and pay face value at maturity and should not be part of an emergency fund.

Answer 32

Zero-coupon bonds