FINA 200 Lecture 3 Exam Questions and Answers All Correct

FINA 200 Lecture 3 Exam Questions and Answers All Correct What are 2 alternative budgeting strategies? - Answer-Envelope method Pay yourself method Personal Balance sheet? - Answer-AKA Net Worth Statement Overall snapshot of your wealth at a specific point in time summarizing you assets (what you own) less your liabilities (what you owe) to determine your net worth What are liquid assets? - Answer-Financial assets that can be easily converted into cash without a loss in value (e.g. cash, chequing account) What are household assets? - Answer-Items normally owned by a household (eg. car, furniture) - you need to establish market values for these assests incase you sold them today What are 4 types of investments - Answer-■ Stocks: certificates representing partial ownership in a firm ■ Bonds: certificates issued by borrowers, usually firms and government agencies, to raise funds ■ Mutual funds: investment companies that sell units to individuals and invest the proceeds in an overall portfolio of investment instruments such as bonds or stocks ■ Real estate: holdings in rental property and land Rental property: housing or commercial property that is rented out to others Current liabilities - Answer-Personal depts that will be paid in the near future (credit card debt) Long-term liabilities - Answer-debts that will be pair over a period longer than one year (e.g. student loan) What is the purpose of creating a personal balance sheet? - Answer-Allows you to determine your net worth net worth = value of total assets - value of total liabilities How can net cash flows be used to increase net worth? - Answer-Use dollars (NET CASH FLOW) to invest in more assets (INCREASE VALUE OF ASSETS therefore INCREASE NET WORTH) OR Use dollars (NET CASH FLOW) to reduce your liabilities (DECREASE VALUE OF LIABILITIES therefore INCREASE NET WORTH) What is liquidity measured by - Answer-Current ratio = liquid assets/current liabilities Liquid ratio = liquid assets/monthly living expenses What does a high debt to asset ratio mean? - Answer-There is an excessive amount of debt What is a savings ratio? - Answer-measures savings over the period in comparison to disposable income over the period What two personal financial statements are most important to personal financial planning? - Answer-The personal cash flow statement and the personal balance sheet how can you modify your cash flows to enhance your wealth? - Answer-To increase your wealth, you maximize your cash flows by maximizing your income and/or minimizing expenses. Identify some factors that affect income. - Answer-Key factors that determine your income level are the stage of your career path and your job skills. The number of income earners in the household will also affect your cash inflows.