Exam 1 | AAEC 2104 - Personal Financial Planning, Quizzes of Business Finance

Download Exam 1 | AAEC 2104 - Personal Financial Planning and more Quizzes Business Finance in PDF only on Docsity! TERM 1 Estate planning DEFINITION 1 Planning for the passage of your wealth to your heirs.Estate planning is the process of anticipating and arranging for the disposal of an estate during your life. TERM 2 Inflation DEFINITION 2 An economic condition in which rising prices reduce the purchasing power of money TERM 3 Compound interest DEFINITION 3 Interest paid on interest.This occurs when interest paid on an investment is reinvested and added to the principle, thus allowing you to earn interest on the interest, as well as on the principle. TERM 4 Diversification DEFINITION 4 Acquisition of a variety of different investments instead of just one to reduce risk. TERM 5 Personal balance sheet DEFINITION 5 A statement of your financial position on a given date. It includes the assets you own, the debt or liabilities you have incurred, and your level of wealth, which is referred to as net worth. TERM 6 Assets DEFINITION 6 What you own TERM 7 Liabilities DEFINITION 7 Something that is owed or the borrowing of money. TERM 8 Net Worth or Equity DEFINITION 8 A measure of the level of your wealth. It is determined by subtracting the level of your debt or borrowing from the value of your assets. TERM 9 Fair market value DEFINITION 9 What an assets could be sold for rather than what it cost or what it will be worth sometime in the future. TERM 10 Monetary Asset DEFINITION 10 Basically a liquid asset - one that is either cash or can easily be turned into cash with little or no loss in value TERM 21 Long term debt DEFINITION 21 COnsists of debt on a larger assets, such as your home or car or student loan. TERM 22 Net worth DEFINITION 22 A measurement of your wealth.Net worth = total assets - total debt TERM 23 Insolvent DEFINITION 23 The condition in which you owe more money than your assets. TERM 24 Income statement DEFINITION 24 A statement that tells you where your money has come from and where it has gone over some period of time. TERM 25 For you income statement, Income will include... DEFINITION 25 includes items such as wages, salary, bonuses, tips, royalties, and commisions, in addition to any other sources of income you may have. TERM 26 Variable expenditure DEFINITION 26 An expenditure over which you have control. That is, you are not obligated to make that expenditure, and it may vary from month to month. TERM 27 Fixed expenditure DEFINITION 27 An expenditure over which you have no control. You are obligated to make this expenditure, and it is generally at a constant level each month. TERM 28 Budget DEFINITION 28 A plan for controlling cash inflows and cash outflows. Based on your goals and financial obligations, a budget limits spending in different categories. TERM 29 Current ratio DEFINITION 29 A ratio aimed at determining if you have adequate liquidity to meet emergencies, defined as monetary assets divided by current liabilities.Current ration = Monetary assets / Current liabilities. TERM 30 Month's living expenses covered ratio DEFINITION 30 A ratio aimed at determining if you have adequate liquidity to meet emergencies, defined as monetary assets divided by annual living expenditures divided by 12.Month's living expenses covered ratio = Monetary assets / Annual living expenditures/12 TERM 31 Debt Ratio DEFINITION 31 A ratio aimed at determining if you have the ability to meet your debt obligations, defined as total debt or liabilities divided by total assets.Debt ratio = Total debt or liabilities / total assets TERM 32 Long term debt coverage ratio DEFINITION 32 A ratio aimed at determining if you have the ability to meet your debt obligations, defined as total income available for living expenses divided by total long term debt payments.Long term debt coverage ratio = total income available for living expenses / total long term debt payments TERM 33 Savings ratio DEFINITION 33 A ratio aimed at determining how much you are saving, defined as income available for saving and investments divided by income available for living expenditures.Savings ratio = income available for savings and investment / income available for living expenditures TERM 34 Ledger DEFINITION 34 A book or notebook set aside to record expenditures. TERM 35 Principle DEFINITION 35 The face value of the deposit or debt instrument. TERM 46 Compounded annuity DEFINITION 46 An investment that involves depositing an equal sum of money at the end of each year for a certain number of years and allowing it to grow. TERM 47 Future value interest factor of an annuity DEFINITION 47 A multiplier used to determine the future value of an annuity.Future value = annual payment x future value interest factor of an annuity TERM 48 Present value interest factor of an annuity DEFINITION 48 A multiplier used to determine the present value of an annuity.Present value = annual payment x present value interest factor of an annuity TERM 49 Amortized Loan DEFINITION 49 A loan paid off in equal installments TERM 50 Perpuity DEFINITION 50 An annuity that continues forever.