Personal finance 2

Question 1

Define assets

Answer 1

Cash and other property with monetary value

Question 2

Define cash flow

Answer 2

The actual inflow and outflow of cash during a given period

Question 3

Define insolvency

Answer 3

The inability to pay debts when they are due because liabilities far exceed the value of assets

Question 4

Define net worth

Answer 4

The difference between total assets and total liabilities

Question 5

Define EAR

Answer 5

Effective annual rate a formula that calculates the effective return taking compounding into account

Question 6

Define money market fund

Answer 6

A savings investment plan offered by investment companies with earnings based on investments in very short term financial instruments

Question 7

Define debt ratio

Answer 7

a measure of the cash flow available to pay current debt obligations. The ratio states net operating income as a multiple of debt obligations due within one year, including interest, principal, sinking-fund and lease payments

Question 8

List three purposes of having an organized system of financial records in

Answer 8

1. Handling daily business affairs including paying bills on time
2. Planning and measuring financial progress
3. Determining available resources for current and future budgeting

Question 9

Define money management

Answer 9

The day-to-day financial activities necessary to manage current personal economic resources while working towards long-term financial security

Question 10

What are the three components of money management

Answer 10

1. Storing and maintaining personal financial records and documents
2. Creating personal financial statements balance sheet and cash flow statements of income and outflow
3. Creating and implementing a plan for spending and saving budgeting

Question 11

Define budgeting

Answer 11

Creating and implementing a plan for savings and spending

Question 12

How long should you keep personal financial records

Answer 12

Depends. Birth certificates and wills permanently
Property and investments for as long as you own them
CRA for six years
Purchase of real estate forever

Question 13

Explain three uses for net worth statements or balance sheet

Answer 13

1. Summarize the value of items you own and the amount you owe
2. Track your cash inflows I have sores and here outflow by type
3. Identify strengths and weaknesses in your current financial situation
4. Measured progress toward your financial goals
5. Provide data for use in filing your income tax returns or applying for credit

Question 14

What does a balance sheet tell you

Answer 14

Also called the net worth statement reports and what you own and what you owe items of value minus amounts of debt equals net worth

Question 15

What is the basic equation for computing net worth

Answer 15

Assets minus liabilities equals net worth

Question 16

Define liquid assets

Answer 16

Cash or assets that can easily be converted to cash

Question 17

Define fair market value

Answer 17

The current resale value of items

Question 18

Define liabilities

Answer 18

The amount owed to others but do not include items not due yet. Lliability is the debt you own now not something you may owe in the future

Question 19

Define current liabilities

Answer 19

That CMS pay within a short time usually less than a year

Question 20

Define long-term liabilities

Answer 20

Debts that you do not have to pay in full until more than a year from now Ie education loans mortgages car loans

Question 21

Define cash flow statement

Answer 21

Also called a personal income and expenditure statement a summary of cash receipts and payments for a period of time report provides data on your income and spending patterns

Question 22

How do you determine the value of debt or liability

Answer 22

How much you owe now not in the future