MM Ch 2 Test Review

A financial plan is created like

• map of the world.

• blueprint for building a house.

• bank account statement.

• receipt for an item purchased with a credit card.

A person increases his net worth by

• buying a new car with a 10% down payment from savings and a 90% loan.

• making purchases with a credit or debit card.

• increasing assets and decreasing liabilities.

• transferring money from a savings account to a checking account.

A person has a house worth $100,000, a mortgage of $90,000, savings of $5,000, a car valued at $10,000, a $7,000 car loan, and $3,000 in credit card debt. This person's net worth is

• $115,000.

• $100,000.

• $15,000.

• $5,000.

A financial plan does not include

• managing risk.

• retirement planning.

• bankruptcy.

• investing.

A person increases liquidity when he

• buys more items on credit and fewer items with cash.

• uses money saved to buy an asset like a car.

• uses cash to pay off credit card debt.

• makes weekly deposits in a bank savings account.

"Good credit management" means

• making purchases with credit or debit cards.

• using credit to make purchases that cost more than $1,000 and paying the minimum required each month.

• using credit to make purchases when the buyer knows she can quickly pay the amount owed.

• making most purchases on credit in order to track money spent.

Why is insurance a method of managing risk?

• Insurance protects assets from being lost or damaged.

• Insurance limits a person's financial loss if an asset is lost, stolen, or damaged.

• A person's liabilities are reduced when insured assets are lost or stolen.

• A person's budgeted monthly expenses are covered by insurance

A 21-year-old college graduate starting her first full-time job wants to buy a home by age 30. Why should she include this goal in her financial plan?

• She can apply for a mortgage now while she is young and rates are low.

• She is more likely to achieve her goal if she starts saving and investing now in order to have the down payment needed to buy the house.

• She can start buying things for her house while she is living with her parents and has limited expenses.

• She can buy the house as soon as she finds the one she likes.

Which of the following is not a component of a financial plan?

• a plan to manage risk

• a plan to pay utility bills

• a plan for investing

• a plan for retirement

Your net worth is the difference between your __________.

• assets and liabilities

• payments and income

• cash inflows and outflows

• liquid assets and long-term assets