Deck 3: Tools for Financial Planning - Planning with Personal Financial Statements

Question 1

Cash outflows represent your liabilities,such as the pay-off value on your car or home.

Answer 1

False

Question 2

During the final stage in the life cycle,retirement,people generally experience higher incomes.

Answer 2

False

Question 3

Careful budgeting and controlled spending lead to self-reliance and a feeling of financial freedom.

Answer 3

True

Question 4

A debt-to-asset ratio above 1 is more important than a liquidity ratio above 1.

Question 5

Your net worth can change even if your net cash flows are zero.

Question 6

Budgeting is the forecasting of future income,expenses,and savings.

Question 7

Someone with a monthly income of $5000,$5000 in their checking account and monthly expenses of $5000 would have Liquidity Ratio of 2.

Question 8

If JT's gross income is $50 000,disposable income is $36 000,and he saves $5000 annually,his savings ratio is 10%.

Question 9

A high debt-to-asset ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems.

Question 10

People who have very high incomes are much better savers than those with moderate incomes.

Question 11

One of the problems in making a monthly budget is that some expenses fluctuate quite a bit from month to month.

Question 12

One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them.

Question 13

A negative cash flow means net worth will decrease.

Question 14

Salary or wages are the main source of income for most working people.

Question 15

A personal cash flow statement is usually the starting point for an individual's or family's budget.

Question 16

Stocks are considered a short-term liquid investment since they are easy to sell.

Question 17

Paying $2000 to reduce your car loan to $5000 would increase your debt-to-asset ratio (all else being equal).

Question 18

Individuals who switch from a low-demand industry to a high-demand industry may earn higher incomes.

Question 19

Long-term liabilities are debts that will be paid off at least three years into the future.

Question 20

Getting financial help from family and friends should be your first options in case of emergencies.

Question 21

Raymond has a $5000 bank loan due in nine months,$3000 in credit card liabilities due in 1.5 months,and another $4000 loan due in 1.5 years.In this case,Raymond has total long-term liabilities of $4000.

Question 22

What are net cash flows?

A)All assets minus liabilities
B)All incomes minus living expenses
C)Current assets minus current liabilities
D)After-tax income minus expenses

Question 23

Net worth always increases when you increase the value of your assets.

Question 24

If you have an increase in monthly disposable income from $4000 to $4500 and an increase in spending of $650 per month,your net cash flow is reduced by $150 per month.

Question 25

What is the purpose of creating your personal cash flow statement?

A)To develop your budget
B)To create your balance sheet
C)To track your net worth
D)For your annual tax return records

Question 26

Students with a negative net worth are essentially bankrupt.

Question 27

It is possible to budget for irregular expenses paid infrequently.

Question 28

A net worth statement can be used to monitor the changes in your wealth over time.

Question 29

This month Jill received $1000 income from her job and $200 in stock dividends.Her expenses were rent and utilities of $300 and $300 on groceries and $200 on clothing.Which of the following is True?

A)Jill has a net cash flow of $400.
B)Jill has net expenses of $400.
C)Jill has a net cash flow of $200.
D)Jill has net income of $400.

Question 30

Which of the following is required in creating a cash flow statement?

A)The values of all assets
B)Value of all liabilities
C)Amounts used for expenses
D)The ideal emergency fund amount

Question 31

Income of $2760 monthly with expenditures of $2880 monthly will result in a negative cash flow of $120.

Question 32

Mutual funds are portfolio investments that require investors to make individual stock or bond investment decisions themselves.

Question 33

A high debt-to-asset level is common during the early- to mid-earning life stages.

Question 34

Which of the following is not a cash inflow?

A)Interest received
B)Dividend income
C)Car payment
D)Salary

Question 35

A liquidity ratio between 1 and 2 is ideal.

Question 36

Assets valued at $400 000 with liabilities of $300 000 means a liquidity ratio of 3 to 1.

Question 37

If your net cash flow is $1000,the total value of your assets is $14 000,and your total debts are $4000,then your net worth is $11 000.

Question 38

Household assets include jewelry and furniture and should be valued at the cost to replace them.

Question 39

Assets valued at $400 000 with liabilities of $300 000 means a debt-to-asset ratio of 0.75.

Question 40

The lower your debt-to-asset ratio is,the easier it is to increase net worth.

Question 41

Which of the following would increase your liquid assets?

A)Paying off a loan
B)Depositing funds to a savings account
C)Buying rental property
D)Contributing to an RRSP

Question 42

If both a husband and a wife are employed full time,their consumption behaviour

A)is usually higher.
B)tends to decrease.
C)will decrease as they age.
D)is similar to all mid earning life stage people.

Question 43

What is a practical way to make sure you stay within your budget and achieve your savings goals?

A)Use the pay yourself first method.
B)Use a credit card for all expenses.
C)Reduce your spending.
D)Get a second job.

Question 44

Jeff has a $1000 salary and $100 dividend income this month.This month Jeff has rent and utilities of $600 and he spent $200 on groceries and $100 on clothing.What is his net cash flow this month?

A)$500
B)$100
C)$200
D)$1100

Question 45

All of the following affect cash outflows except

A)the size of the family.
B)your age.
C)your education level.
D)your personal consumption behaviour.

Question 46

Which of the following is the worst approach to solving the problem of an annual budget deficit?

A)Liquidate enough savings or investments to make up the deficit.
B)Get an additional credit card and cover the deficit with that.
C)Renegotiate debt to longer term,lower interest options.
D)Increase income by getting an additional part-time job.

Question 47

Which of the following is not considered an asset for a family?

A)Cash in a chequing account
B)A mortgaged home
C)A leased car
D)Furniture

Question 48

To save money,excess cash flow will be required.What is excess cash flow?

A)Funds remaining after all debts are paid off
B)Net salary after expenses
C)Net profit from the sale of an investment
D)Surplus cash after all expenses are paid

Question 49

Which of the following usually affects cash inflows the most?

A)The education and income of your parents
B)Your job skills
C)Your personal consumption behaviour
D)The size of your family

Question 50

What error do many individuals make in budgeting?

A)Overestimate expenses and underestimate income
B)Overestimate income and underestimate expenses
C)Overestimate income and expenses
D)Underestimate income and expenses

Question 51

A cash flow statement is

A)an accurate recording of recent actual expenses and incomes.
B)a forecast of cash inflows and outflows.
C)only concerned with regular sources of income and expenses.
D)a record of surplus or deficit each month.

Question 52

If you do not budget for unexpected expenses,you will likely experience

A)cash shortages.
B)an increase in your emergency fund.
C)an increase in assets.
D)chronic stress-related issues.

Question 53

What tends to be the case for the retirement life stage?

A)Lower debt levels than in early-earning and mid-earning life stages
B)Managing expenses for new hobbies becomes challenging.
C)Managing RRSP investments becomes paramount.
D)Increase in taxes due to income on retirement funds

Question 54

Which cash inflow will probably be discontinued after retirement?

A)Dividend and interest received from investments
B)Pension payments
C)Salary
D)Social assistance benefits

Question 55

A budget is

A)the same thing as a cash flow statement.
B)a method to measure net worth and monitor wealth.
C)an historical record of income and expenses.
D)a forecast of all items on the cash flow statement.

Question 56

Property such as a person's home,car,and furniture is called

A)personal assets.
B)household assets.
C)major property assets.
D)long-term assets.

Question 57

This month Joshua has $2000 income from his job and $100 interest income.His expenses are rent $500,food and entertainment $400,car expenses $600.He has $40 000 held in bonds and a car loan of $10 000.What is his net worth?

A)$30 000
B)$32 100
C)$30 600
D)$30 500

Question 58

Which of the following is not a liquid asset?

A)Cash in your pocket
B)Money in a savings account
C)Access to your credit card
D)Money in your chequing account

Question 59

This month Joshua has $2000 income from his job and $100 interest income.His expenses are rent $500,food and entertainment $400 and car expenses $600.He has $40 000 held in bonds and a car loan of $10 000.What is his cash flow this month?

A)$600
B)$500
C)-$9400
D)$30 600

Question 60

Which one of the following is a liquid asset?

A)Money in a savings account
B)A car
C)Cash in an RRSP
D)Stock held in an investment account

Question 61

Which of the following is not a True statement about mutual funds?

A)They are managed by professional managers.
B)They are only invested in stocks.
C)A minimum investment is required.
D)The value of shares is reported in The Globe and Mail.

Question 62

Which of the following would increase your net worth (all else the same)?

A)Paying down your mortgage with excess cash flow
B)Getting a salary increase
C)Selling your condo
D)Buying a recreational property

Question 63

Nancy has a gross income of $47 000,disposable income of $40 000,discretionary income of $4000 and saves $8000 a year.Her savings rate is

A)10 percent.
B)15 percent.
C)17 percent.
D)20 percent.

Question 64

Bills that are to be paid off within a year are called

A)short-term liabilities.
B)one-year liabilities.
C)current liabilities.
D)insignificant bills.

Question 65

Liabilities can be calculated by

A)adding assets plus net worth.
B)subtracting net worth from assets.
C)adding assets plus income.
D)subtracting expenses from assets.

Question 66

Current liabilities include all of the following except

A)this year's monthly car payments on a three-year loan.
B)the total mortgage on a home.
C)the amount due on a credit card.
D)next month's payment on a student loan.

Question 67

A major part of the budgeting process to ensure success is

A)reducing credit limits on credit cards.
B)limiting entertainment expenses.
C)establishing an emergency fund.
D)planning an overdraft for your chequing account.

Question 68

Jennifer has assets of $100 000 and debts of $10 000.She could

A)borrow more money,since her debt ratio is low.
B)apply for a bank loan,but expect to be turned down.
C)borrow approximately $200 000 at below-market rates.
D)establish an emergency fund of $10 000 in order to qualify for a loan.

Question 69

Which of the following actions will decrease your net worth?

A)Fitness club dues paid monthly
B)Contributions to a mutual fund paid monthly
C)Student loan payments paid monthly
D)Home mortgage payments paid monthly

Question 70

Which is an example of a possible unanticipated cash flow shortage?

A)Your car gets rear ended.
B)Your annual life insurance payment comes due.
C)Your property tax bill is overdue.
D)Your car loan payment falls due.

Question 71

When a person owns corporate stocks,government or corporate bonds,or mutual funds,these are called

A)liquid assets.
B)long-term assets.
C)investment assets.
D)retirement assets.

Question 72

If you sell stock from your portfolio to pay off your car loan,your debt ratio of 0.5 will

A)improve (increase).
B)improve (decrease).
C)remain unchanged.
D)decrease (unfavourably).

Question 73

Balance sheet assets should be valued at

A)original purchase price.
B)replacement value.
C)insured value.
D)fair market value.

Question 74

The current financial position of an individual or family is best presented with the use of a

A)net worth statement.
B)cash flow statement.
C)balance sheet.
D)bank statement.

Question 75

If your net worth is not improving over time,you can use your budget to

A)make yourself take a more disciplined approach.
B)add part-time income you had not previously included in your budget.
C)identify the components in the budget you can change.
D)improve your rate of return on investments by raising the risk level.

Question 76

If your budget forecasts a shortfall in cash flow,the best way to use your budget is to

A)eliminate all entertainment expenses for that period.
B)build an emergency fund to prepare for the shortfall.
C)increase cash flows from all sources not previously recorded.
D)obtain credit in advance of the predicted shortfall.

Question 77

A personal balance sheet summarizes

A)income,expenses and net worth.
B)cash inflows,outflows and net worth.
C)assets,net worth,and income.
D)assets,liabilities,and net worth.

Question 78

Student loans,car loans,and mortgages are good examples of

A)long-term liabilities.
B)current liabilities.
C)short-term debts.
D)household liabilities.

Question 79

Which of the following has the best debt-to-asset ratio?

A)John has total assets of $600 000 and total debt of $400 000.
B)Fred has total assets of $36 000 and total debt of $23 000.
C)Maria has a monthly gross income of $8000 and expenses of $6000.
D)Cassandra has a gross monthly income of $2000 and expenses of $1200.

Question 80

If Jo Ann had $4000 in liquid assets and $1000 in current liabilities,she would have a current ratio of

A)0)25.
B)4)0.
C)1000.
D)4000.