Chapter 2—Using Financial Statements and Budgets
113. Your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10 years. If you
require a 7% return, 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
b
1
Challenging
114. 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?
a.
8
b.
9
c.
10
d.
11
e.
12
c
1
Moderate
115. 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?
a.
b.
c.
d.
e.
e
Chapter 2—Using Financial Statements and Budgets
Moderate
116. Phil has $2,000 and he needs it to grow to $4,000 in 8 years. Assuming he adds no more money to this fund, what
rate of return would he need to earn?
a.
6%
b.
7%
c.
8%
d.
9%
e.
10%
Challenging
117. Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth
today?
a.
$100,000
b.
$106,000
c.
$130,000
d.
$133,823
e.
$135,603
Challenging
Chapter 2—Using Financial Statements and Budgets
118. Elena purchased a stamp collection for $5,000 thirty years ago. If it appreciated 8% annually, what is it worth today?
a.
$17,000
b.
$36,400
c.
$50,313
d.
$123,023
e.
$150,000
c
Challenging
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Bloom’s: Analyzing
119. Personal net worth is highest at about what age range?
a.
35–44
b.
45–54
c.
55–64
d.
65–74
e.
75 and older
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Bloom’s: Remembering
120. Which of the following is not among the four categories accounting for almost three-quarters of consumer spending?
a.
Utilities
b.
Food
c.
Transportation
d.
Housing
e.
Personal insurance and pensions
a
Easy
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Bloom’s: Remembering
121. Which of the following are not among the four categories accounting for three-quarters of consumer spending?
a.
Utilities
b.
Clothing
Chapter 2—Using Financial Statements and Budgets
c.
Food
d.
a and b
e.
a, b, and c
Easy
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Bloom’s: Remembering
122. Which of the following is among the four categories accounting for almost three-quarters of consumer spending?
a.
Personal insurance and pensions
b.
Clothing
c.
Utilities
d.
Entertainment
e.
Medical
a
Easy
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Bloom’s: Remembering
INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first
item, B for the second item, and C if neither item will correctly complete the statement.
123. A personal balance sheet provides a statement of your financial [position | performance].
a
Easy
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Bloom’s: Remembering
124. The primary function of financial statements is to provide a picture of your [actual | projected] financial position.
a
Moderate
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Chapter 2—Using Financial Statements and Budgets
125. A [savings account | retirement account] would be an example of a liquid asset.
126. A [house | certificate of deposit] is an example of a tangible asset.
127. Investment assets are required to [earn a return | provide a service].
128. A(n) [auto loan balance | insurance premium] would be an example of a current liability.
Chapter 2—Using Financial Statements and Budgets
129. Another term sometimes used for net worth is [collateral | equity].
130. A liability would be listed on a personal balance sheet as the [amount originally borrowed | amount of the next loan
payment to be made | none of these].
131. When your liabilities exceed your assets, you are [solvent | insolvent].
132. When your assets exceed your liabilities, you are [saving | solvent].
Chapter 2—Using Financial Statements and Budgets
133. If your expenses exceed your income, the bottom line of your income/expense statement will show a [surplus |
deficit].
134. The total amount of salary you earn before taxes are deducted is called your [gross | net] pay.
135. You bought a $500 stereo on the installment plan and made two payments of $75 during the year. On your income
and expense statement for the year, you will show an expense of [$150 | $500].
Chapter 2—Using Financial Statements and Budgets
136. [Medical expenses | Rent payments] would be more difficult to estimate for the coming year.
137. You originally paid $6,000 for your car, which has a current market value of $4,000, and the balance of the loan
against it is now $2,500. You will list this car in the assets section of your personal balance sheet at [$6,000 | $4,000].
138. Your car has a market value of $10,000 while the balance of the loan against it is now $2,500. You will list this car in
the assets section of your personal balance sheet at [$7,500 | $10,000].
139. A deficit on your income and expense statement will have [an | no] effect on your personal balance sheet.
Chapter 2—Using Financial Statements and Budgets
140. If you pay off your debt but make no changes in your assets, your net worth will [increase | decrease].
141. Total assets on your personal balance sheet are $6,000 and liabilities are $2,000. Your solvency ratio is [67% | 33%].
142. The liquidity ratio is designed to show the percentage of [your current debt obligations | next month’s credit
obligations] you could cover with your current assets.
143. Your gross income was $32,000; your net income was $25,000; you saved $1,000. Your savings ratio was [3% | 4%].
Chapter 2—Using Financial Statements and Budgets
144. The purpose of the debt service ratio is to show the amount of your income needed to pay your [current liabilities |
monthly loan payments].
145. Financial planning and budgeting [do | do not] mean the same thing.
146. A detailed short-term financial forecast used to monitor and control expenses is called a [budget | financial
statement].
147. If your budget shows a deficit, one option is to increase [income | expenses] to regain balance.
Chapter 2—Using Financial Statements and Budgets
148. Another word for take-home pay is [gross | disposable] income.
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
149. If you liquidate assets or borrow to make your budget balance, this will [increase | decrease] your net worth.
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
150. The most difficult approach to handling a budget deficit is to [increase income | liquidate investments].
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
151. A budget will have value only if it is actually used and [records are kept of actual income and expenses | spending
never deviates from the budgeted amount].
LEARNING OBJECTIVES:
NATIONAL STANDARDS:
Chapter 2—Using Financial Statements and Budgets
152. [Borrowing money | Cutting low-priority expenses] is the preferable way to deal with a budget deficit.
153. [Present | Future] value is the value today of an amount to be received in the future.
154. Net worth is typically highest for those in the age bracket of [ages 65−74 | ages 75 and older].
155. Four categories, accounting for 75% of consumer spending, include [utilities | clothing].
Chapter 2—Using Financial Statements and Budgets
156. Four categories, accounting for 75% of consumer spending, include [clothing | housing].
157. Four categories, accounting for 75% of consumer spending, include [entertainment | food].
158. Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is
their net worth? (Show all work.)
159. Rosa and Jose have liquid assets of $5,000 and other assets of $50,000. Their total liabilities equal $26,000. What is
their net worth? (Show all work.)
Chapter 2—Using Financial Statements and Budgets
160. The Hart family spends 30 percent of their disposable income on housing, 5 percent on medical expenses, 25 percent
on food, 10 percent on clothing, 14 percent on loan repayments, and 8 percent on entertainment. How much of their
disposable income is available for savings and investment? (Show all work.)
Moderate
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161. Construct a personal balance sheet from the following information. Be sure the format is correct. (Show all work.)
Cash on hand
$ 75
Bank credit card balance
1,200
Utility bill (over due)
100
Auto loan balance
3,500
Mortgage
75,000
Primary residence
105,000
Jewelry
2,000
Stocks
17,500
Coin collection
2,500
2001 Toyota
7,500
Assets:
Liabilities:
Cash on hand
Primary residence
Bank credit cards
2001 Toyota
Auto loan
Jewelry
Mortgage
Stocks
Total liabilities
Coin collection
Net worth
Total assets
Total liab. and net worth
Less: Total Liabilities
Equal: Net Worth
$29,000
Challenging
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Bloom’s: Analyzing
Chapter 2—Using Financial Statements and Budgets
162. Construct a personal balance sheet from the following information. Be sure the format is correct. (Show all work.)
Cash on hand
$ 500
Bank credit card balance
750
Taxes due
500
Utility bills (over due)
120
Auto loan balance
6,000
Mortgage
45,000
Primary residence
60,000
Jewelry
1,200
Stocks
6,000
Coin collection
2,500
2001 Toyota
7,500
Auto payment
250
Assets:
Liabilities:
Cash on hand
Utilities
Primary residence
Taxes
2001 Toyota
Bank credit cards
Jewelry
Auto loan
Stocks
Mortgage
Coin collection
Total liabilities
Net worth
Total assets
Total liab. and net worth
Challenging
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Bloom’s: Analyzing
163. Inflation this coming year is expected to be 4 percent. If Mr. Gonza earned $37,000 this year, how much must he
earn the following year just to keep up with inflation and maintain the balance between his income and his increasing
expenditures? (Show all work.)
Challenging
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Bloom’s: Analyzing
Chapter 2—Using Financial Statements and Budgets
164. Inflation this coming year is expected to be 3 percent. If Mr. Gonza earned $45,000 this year, how much must he
earn the following year just to keep up with inflation and maintain the balance between his income and his increasing
expenditures? (Show all work.)
165. Jamie wants to have $1,000,000 for her retirement in 25 years. How much should she save annually if she thinks she
can earn 10% on her investments?
166. The Hamptons want to have $1,750,000 for their retirement in 30 years. How much should they save annually if they
think they can earn 8% on their investments?
Chapter 2—Using Financial Statements and Budgets
167. The Flemings will need $80,000 annually for 20 years during retirement. How much will they need at retirement if
they can earn a 4% rate of return?