Question

1) If assets on a personal balance sheet increase by $38600 and liabilities increase by $17125, then net worth will

A) increase by $38600.

B) increase by $21475.

C) decrease by $21475.

D) decrease by $17125.

2) Matthew Young has a checking account worth $4300 and a credit card balance of $5200. What is Matthew’s net worth?

A) +$900

B) +$9500

C) −$900

D) −$9500

3) Steven takes home $4880 a month from his full-time job. He has a monthly expenditure of $2800 between his rent, health insurance, and car payments, as well as dinner out with his friends. What is Steven’s monthly net cash flow?

A) $2080

B) $2800

C) $4880

D) $7680

4) The bank requires the mortgage debt service ratio to be at or under 36%. John currently earns a gross income of $2900 per month. What is the maximum monthly payment amount John can expect to qualify for?
A) $81

B) $1044

C) $1856

D) $2900

5) Joseph’s monthly gross income is $4400, and his monthly disposable income is $3300. He saves approximately $400 a month. What is his savings ratio?

A) 24.24%

B) 9.09%

C) 36.36%

D) 12.12%

Answer 1

1). Net Worth = Total Assets - Total Liabilities

Since, assets and liabilities have increased,

Net worth = +$38,600 - (+$17,125)

= +$21,475

So, Net worth increased by $21,475

Option B

2). Net Worth = Checking Account(asset) - Credit card balance (liability)

= $4300 - $5200

= -$900

Option C

3). Monthly Net cash flow = Monthly Income - Monthly Expenditure

= $4880 - $2800

= $2080

So, Steven's Monthly net cash flow is $2080

Option A

4). Gross Monthly Income = $2900

Mortgage debt service ratio = 36%

Maximum Monthly debt payment as per Mortgage debt service ratio = Gross Monthly Income*Mortgage debt service ratio

= $2900*36%

= $1044

Option B

5). Monthly Saving ratio = Monthly savings/Monthly Disposable income

= $400/$3300

= 12.12%

Option D

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