Module 2 Quiz Flashcards
Assets listed on a statement of financial position are typically divided into what three categories?
Cash/cash equivalents, invested assets, and use assets
David is planning to provide $50,000 as financial backing for his coworker’s business, which they have been discussing over lunch for the past year. David does not want to participate in the day-to-day operations, just earn a return for his investment. Which of the following business forms would initially be the least complex to set up and also meet David’s desire to be uninvolved?
Limited partnership
In general, assets are shown on a statement of financial position at _____.
Their fair market values
Which of these assets would be classified as a cash/cash equivalent on the statement of financial position?
Certificate of deposit (CD)
The financial statement that summarizes actual cash receipts and cash disbursements for a specified period is _____.
The cash flow statement
The financial statement that summarizes actual cash receipts and cash disbursements for a specified period is _____.
Home equity, personal property, and retirement benefits
Which of the following is normally considered a fixed outflow?
Auto note payments
A cash flow statement is similar to a budget in that both show _____.
Projected inflows
Which of these is generally considered an appropriate savings ratio?
10% or higher
The ratio of annual debt repayments to gross income is known as _____.
The back-end debt-to-income ratio
To still be considered adequate, the highest a front-end debt-to-income ratio should be is _____.
28%
To still be considered adequate, the highest a front-end debt-to-income ratio should be is _____.
Administrator or human resources
Calculate the savings ratio based on the following financial statement.
INFLOWS $120,000
Gross salaries $1,000
Dividend income $1,225
Interest income $2,500
Payment from trust account $124,725
TOTAL INFLOWS
OUTFLOWS
Savings $7,000
Investments $5,000
Fixed Outflows
Mortgage payments $24,000
Home insurance & taxes $4,100
Auto loan payments $4,800
Insurance premiums $2,125
Total Fixed Outflows $35,025
Variable Outflows
Taxes $20,350
Food $6,500
Transportation $1,550
Clothing/personal $7,525
Entertainment/vacation $10,800
Medical/dental care $5,445
Utilities/household $5,555
Credit card payments $1,000
Miscellaneous $4,625
Total Variable Outflows $63,350
TOTAL OUTFLOWS $105,375
NET INFLOW $19,350
9.62%
Which of these statements regarding home ownership is CORRECT?
Monthly total housing costs tend to fluctuate
Which of the following is NOT a budget item?
House appreciation
What credit protection legislation established the annual percentage rate (APR) as a way to standardize percentage rates for comparison?
Consumer Credit Protection (Truth in Lending) Act
Net worth is the difference between _____.
Total assets and total liabilities
Which of the following is the recommended minimum number of months’ expenses that a working couple’s emergency fund should cover?
Three months
Which of the following statements about an education grant is true?
An education grant is money given outright to a student, with no exception of repayment
Which of the following correctly characterizes the operations of a closely held company?
Closely held company owners commonly commingle personal and business finances, which is a problem a financial planner should monitor
The consumer ratio, also known as the nonmortgage debt-to-income ratio, is considered appropriate when that ratio is _____.
20% or lower
To which of the following does the Fair Credit Billing Act pertain?
Credit cards
Which of these statements about the impact of a FICO score on obtaining credit is CORRECT?
Generally, the lower one’s FICO score, the higher the interest rate for borrowing will be
Which of the following is a reason to consider when deciding whether to buy or lease a home?
- Cost
- Convenience
Both 1 and 2
The Fair Credit Billing Act _____.
Requires creditors to send a statement to the consumer that describes procedures to follow when billing errors occur
What is the net worth on your client’s statement of financial position, presented as follows?
ASSETS LIABILITIES
Cash/Cash Equivalents Credit card balance $0
Checking account $5,500 Auto loan balance $44,000
Savings account $1,000 Mortgage note balance $50,000
Money market account $9,500 Total Liabilities $94,000
Life insurance cash value $15,000
Total Cash $31,000
Invested Assets
Stock portfolio $85,000
Mutual funds $13,000
IRA $10,000
401(k) $100,000
Total Invested Assets $208,000
Use Assets
Residence $450,000
Automobiles $85,000
Art collection $9,000
Personal property $90,000
Total Use Assets $634,000
$779,000
Which of these is typically an advantage that a 15-year mortgage has over a 30-year mortgage?
- Lower monthly payments
- Slower equity accumulation
- Less interest charged over the life of the loan
3 only
Chapter 7 (bankruptcy (liquidation) calls for the immediate liquidation of available assets to pay down any outstanding debt as much as possible and then cancels the remaining debt outstanding. However, it does not cancel which of these?
Government guaranteed student loans
Planners generally recommend what maximum percentage of gross income be spent on rent?
20%-30%
Which of the following statements about establishing a budget is true?
Budgets must be based on realistic assumptions but still flexible enough to adapt to changes in financial position
