Question 1

Dual-income families often face:

Accepted Answer

Dual-income families often have more sources of income and expenses to manage, which can result in increased complexity in their money management systems. They may need to coordinate multiple schedules, negotiate time off for family responsibilities, and balance competing demands for their time and money. This can require careful planning and communication to ensure that both partners are able to meet their financial goals and maintain a healthy work-life balance.

Question 2

Assume that your total income is $72,000.Total expenses including the taxes of $10,000 is $60,000.Your savings ratio is:

Accepted Answer

The answer of Assume that your total income is $72,000.Total...

Question 3

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?

Accepted Answer

The answer of Your investment advisor wants you to purchase...

Question 4

When estimating income for the income and expense statement,you should:

Accepted Answer

Gross income is typically used as the starting point for estimating income on an income and expense statement.

Question 5

What can you do if your budget shows an annual budget deficit?

Accepted Answer

The answer of What can you do if your budget...

Question 6

The expenditure categories for your budget should be determined by:

Accepted Answer

It is important to base your expenditure categories on your current and expected future spending, as this will help you stay realistic and accurate in your budgeting. The other options may provide guidance, but they should not be the sole basis for determining your budget categories.

Question 7

Mike and Teresa Garza have a monthly gross income of $5,000,but they pay $1,000 per month in taxes.They also pay $2,000 per month in various loan payments.What is their debt service ratio?

Accepted Answer

Their total monthly debt payments (loan payments + taxes) are $3,000 ($1,000 + $2,000). 
Their debt service ratio is calculated by dividing their total monthly debt payments by their gross monthly income: 
$3,000 / $5,000 = 0.6 or 60%. 
Therefore, the best choice is C) 40%.

Question 8

Mindy and Lou had liquid assets of $10,000 and current debts of $30,000.What is their liquidity ratio?

Accepted Answer

The liquidity ratio is the ratio of liquid assets to current debts. 
Liquidity ratio = (liquid assets / current debts) x 100%
= ($10,000 / $30,000) x 100%
= 0.33 x 100%
= 33%
Therefore, the correct answer is B.

Question 9

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?

Accepted Answer

The answer of Jamil invested $9,500 in an account he...

Question 10

Using the information on a personal balance sheet,the _____ ratio indicates your ability to meet current debt payments.

Accepted Answer

The liquidity ratio measures your ability to cover short-term obligations with your liquid assets, indicating your capacity to meet current debt payments.

Question 11

Kim's net worth is $85,000 and her total assets are $100,000.What is Kim's solvency ratio?

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The answer of Kim's net worth is $85,000 and her...

Question 12

Theresa invested $5,000 in an account she expects to earn 7% annually.Approximately how many years will it take for the account to double in value? (Round number of years to nearest whole number.)

Accepted Answer

To double the initial investment, the account needs to earn another $5,000 (100% increase). Since the account is expected to earn 7% annually, we can use the following formula to find the number of years it will take to double:
$5,000 x 1.07^n = $10,000
Simplifying the equation:
1.07^n = 2
Taking the logarithm of both sides:
n log(1.07) = log(2)
n = log(2) / log(1.07)
n ≈ 10
Therefore, it will take approximately 10 years for the account to double in value. The closest whole number to 10 is C (10).

Question 13

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? Approximate the rate of interest to the nearest whole number.

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The answer of Phil has $2,000 and he needs it...

Question 14

Assume that your total income for the current year is $35,000.Total expenses including the taxes of $5,000 is $30,000.Your savings ratio is:

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The answer of Assume that your total income for the...

Question 15

Jacque's total monthly loan payments are $1,020 while her gross income is $3,000 per month.What is her debt service ratio?

Accepted Answer

The answer of Jacque's total monthly loan payments are $1,020...

Question 16

To determine how effectively the budget is working,you can use:

Accepted Answer

Income and expenditure records are the best way to determine how effectively the budget is working. By comparing the actual income and expenditures to the budgeted amounts, you can identify any areas where you may be overspending or underspending, and make adjustments as necessary. The balance sheet, bank statement, and financial statements at the beginning of the period can provide useful information as well, but they do not give you the same level of detail as the income and expenditure records. Financial goals are important for setting the budget in the first place, but they do not help you evaluate how well the budget is working after it has been implemented.

Question 17

A savings ratio expresses the:

Accepted Answer

A savings ratio expresses the percentage of after-tax income that is saved, not gross income or tax-deferred income. It also does not relate to covering immediate debt, so the correct answer is C, the percentage of after-tax income saved.

Question 18

The best approach to solving the problem of an annual budget deficit is generally to:

Accepted Answer

Reducing flexible expenditures is often the most practical approach to addressing a budget deficit, as these are non-essential and can be adjusted without significantly impacting essential services or obligations.

Question 19

In order to minimize the difficulty associated with meeting monthly loan payments,the debt service ratio should be:

Accepted Answer

The lower the debt service ratio, the better. A ratio below 35% indicates that the borrower has enough income to comfortably meet their loan payments each month. Anything above that puts the borrower at risk of defaulting on their loan.

Question 20

The need for budget adjustments is indicated when:

Accepted Answer

Budget adjustments are needed when account deficits exceed surpluses, indicating a financial imbalance.

Quiz 2: Using Financial Statements and Budgets