Chapter 2

Question 1

Personal Balance Sheet

Answer 1

A statement of your financial position on a given date. It includes the assets you own, the debt or liabilities you have incurred, and your level of wealth, which is referred to as net worth.

Question 2

Net Worth or Equity

Answer 2

A measure of the level of your wealth. It is determined by subtracting the level of your debt or borrowing from the value of your assets.

Question 3

Insolvent

Answer 3

Owing more money than one’s assets are worth.

Question 4

Variable Expenditure

Answer 4

An expenditure over which you have control. That is, you are not obligated to make that expenditure, and it may vary from month to month.

Question 5

Fixed Expenditure

Answer 5

An expenditure over which you have no control. You are obligated to make this expenditure, and it is generally at a constant level each month.

Question 6

current ratio

Answer 6

A ratio aimed at determining whether you have adequate liquidity to meet emergencies; defined as monetary assets divided by current liabilities.

Question 7

Month’s Living Expenses Covered Ratio

Answer 7

A ratio aimed at determining whether you have adequate liquidity to meet emergencies; defined as monetary assets divided by annual living expenditures divided by 12.

Question 8

debt ratio

Answer 8

A ratio aimed at determining whether you have the ability to meet your debt obligations; defined as total debt or liabilities divided by total assets.

Question 9

Long-Term Debt Coverage Ratio

Answer 9

A ratio aimed at determining whether you have the ability to meet your debt obligations; defined as total income available for living expenses divided by total long-term debt payments.

Question 10

savings ratio

Answer 10

A ratio aimed at determining how much you are saving; defined as income available for savings and investment divided by income available for living expenditures