Financial Institutions-HW Chapter 1-#8
Chapter 1: Questions to help you Study # 8
1) For any individual, business firm, or government, wealth is the sum of the values of all
assets we hold at any point in time. One’s wealth at the moment equals the combined
value of the automobiles, homes, clothing, and hundreds or thousands of other assets we
have managed to accumulate and hold up to present day. Wealth is built up over time by
a combination of current savings plus income earned from all our previously accumulated
wealth. The increase or decrease in the total wealth we own in the total wealth we own in
the current time period equals our current savings plus the value of all previously
accumulated wealth multiplied by the average rate of return on all previously
accumulated wealth.
Households also accumulate debt, or liabilities, such as mortgages, credit card
debt, and bank loans. Therefore, a true measure of a household’s wealth is its net worth,
which are its assets mines its liabilities. It is important because wealth holdings represent