2. Using Financial Statements and Budgets
2. Using Financial Statements and Budgets
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c. Cash
d. Savings
e. Debt service
53. A savings ratio calculated from an income and expense statement represents the:
a. percentage of gross income saved.
b. ability to cover immediate debt when there is an interruption in income.
c. percentage of after-tax income saved.
d. percentage of tax-deferred income earned annually.
e. percentage of asset value salvaged.
54. Assume that your total income for the current year is $35,000. Your total expenses, including taxes of $5,000, are
$30,000. Your savings ratio is:
a. 7.5%.
b. 10.0%.
c. 12.5%.
d. 13.3%.
e. 16.7%.
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55. Jacques’s total monthly loan payments amount to $1,020, while his gross income is $3,000 per month. What is his
debt service ratio?
a. 34%
b. 43%
c. 50%
d. 75%
e. 82%
56. Mike and Teresa have a monthly gross income of $5,000. They pay $1,000 per month toward taxes and $2,000 per
month toward various loans. What is their debt service ratio?
a. 20%
b. 30%
c. 40%
d. 50%
e. 60%
2. Using Financial Statements and Budgets
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c. sending the kids to college.
d. planning to retire at the age of 60.
e. going on a world tour.
60. There is a need for budget adjustments when:
a. income is stable.
b. account deficits and surpluses balance out.
c. account deficits are more than surpluses.
d. a new calendar year begins.
e. short-term financial goals are achieved.
61. The best approach to solve the problem of an annual budget deficit is to:
a. liquidate more assets than required to meet the budget shortfall for the year.
b. borrow funds on credit cards.
c. reduce flexible expenditures on nonessential items.
d. reduce fixed expenses.
e. reduce high-priority expenses on the budget.
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62. What can you do if your budget shows an annual budget deficit?
a. You can liquidate investments to meet the total budget shortfall.
b. You can increase low-priority expenses on the budget.
c. You can invest more in real estate/personal estate.
d. You can discourage additional borrowing.
e. You can shift expenses from the surplus months to the deficit months.
63. Your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10 years. You
require a 7% return. The present value annuity factor at 7% for 10 years is 7.0236. What is the most you should pay for
this investment?
a. $49,179
b. $175,590
c. $201,000
d. $225,682
e. $250,000
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64. Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take
for the account to double in value? (Round the number of years to the nearest whole number.)
a. 8
b. 9
c. 10
d. 11
e. 12
65. Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for
the account to double in value? (Round answer to one decimal place.)
a. 8.8
b. 9.7
c. 10.8
d. 11.4
e. 14.2
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66. Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to this fund,
what rate of interest would he need to earn? (Round the rate of interest to the nearest whole number.)
a. 6%
b. 7%
c. 8%
d. 9%
e. 10%
67. Michael and Sandy purchased a home for $100,000 5 years ago. If its value appreciated at 6% annually, what is it
worth today? (Round the answer to the nearest dollar.)
a. $100,000
b. $106,000
c. $130,000
d. $133,823
e. $135,603
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70. The first step in financial planning is to:
a. define one’s financial goals.
b. set up a budget.
c. calculate one’s liquidity ratio.
d. prepare a trend analysis.
e. list expenses.
71. A detailed forecast used to monitor and control expenses is called a(n):
a. balance sheet.
b. profit and loss account.
c. budget.
d. income and expense statement.
e. cash inflow.
72. A ______ is an example of a liquid asset.
a. fixed deposit of 3 years
b. savings account
c. tax
d. retirement account
e. car
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73. A ______ is an example of a tangible asset.
a. house
b. patent
c. copyright
d. trademark
e. mortgage
74. Investment assets are required to:
a. be used in our everyday lives.
b. increase productivity.
c. provide a service.
d. earn a return.
e. be easily converted to cash.
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