Calculating, Assessing Financial Standing Ratios Calculate the financial standing ratios using the following information: Total Assets $ 1,500,000 Total Liabilities $ 1,200,000 Cash/Savings (included in total assets) $ 16,000 Gross Income $ 15,000 Income Taxes $ 3,000 Living Expenses $ 4,000 Debt Payments: Home $ 7,500 ($1,000,000 loan) Credit Card $ 700 ($60,000 balance) Car $ 800 ($75,000 loan) Total Debt Payments $ 9,000 Monthly savings $ 300 Budget Not currently budgeting Financial Ratio Your Answer Calculation Net Worth Total assets minus total liabilities Guideline = positive net worth; evaluate size, debt, liquidity Net Cash Flow (NCF) Gross Income minus taxes, living expenses, debt payments = NCF Guideline = positive net cash flow for allocation to prioritized goals Liquidity Ratio months Cash/savings divided by monthly expenses and debt payments Guideline = 6 months coverage Mortgage Debt Service Ratio % Housing payment divided by monthly gross income Guideline = no > 28% debt ratio Debt Service Payment Ratio % Monthly total debt payments divided by monthly gross income Guideline: no > 36% debt ratio Savings Ratio % Monthly savings divided by monthly gross income Guideline 15% Which FSR’s need improvement: Yes No Net Worth/Liquidity Net Cash Flow Liquidity Ratio Mortgage Ratio Total Debt Ratio Savings Ratio
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Deregulated vs Regulated Financial Markets 4 Ideologies 1….
Deregulated vs Regulated Financial Markets 4 Ideologies 1. Free market 2. Lowly regualted 3. Balanced 4. Highly regulated Questions (a) Which ideology do you believe in, explaining/defending your postion (b) Has your view changed as a result of knowing more about financial crises, explaining why or why not
Which of the 5C’s is the most important directly impacting a…
Which of the 5C’s is the most important directly impacting all the other C’s, explaining why? Character (FICO) Capacity (Debt Ratios) Capital (Net Worth) Collateral (Pledged) Condtions (Job, Economy)
Trying to time the market is a recommended investment strate…
Trying to time the market is a recommended investment strategy? Why or why not?
5C’s of Credit Underwriting Consumer Loans Instructions: eva…
5C’s of Credit Underwriting Consumer Loans Instructions: evaluate the borrower profiles to approve or decline a loan request for buying a home Borrower Profile (1) Underwriting Factor 750 FICO 28% Home Debt Ratio 36% Total Debt Ratio High Net Worth 3 Mo. Cash Emergency Fund in Place Moderate Retirement Savings 20% Down Payment 80% Loan to Value Ratio Accountant 15 Years (H) Nurse 15 Year (W) Satisfactory Economic Conditions 2 Children saving for college Approve or Decline (Underline Your Answer) Borrower Profile (2) Underwriting Factor 600 FICO 45% Home Debt Ratio 55% Total Debt Ratio Low Net Worth No Cash Emergency Fund in Place Low Retirement Savings 5% Down Payment 95% Loan to Value Ratio Accountant 3Years (H) Nurse 2 Year (W) Satisfactory Economic Conditions 1 Child not saving for college Approve or Decline (Underline Your Answer) Borrower Profile (3) Underwriting Factor 700 FICO 32% Home Debt Ratio 40% Total Debt Ratio Moderate Net Worth 2 Mo. Cash Emergency Fund in Place Low Retirement Savings 20% Down Payment 80% Loan to Value Ratio Accountant 10 Years (H) Nurse 8 Years (W) Satisfactory Economic Conditions 3 Children limited college savings Approve or Decline (Underline Your Answer)
Monetary and interest rate policy is monitored, managed, and…
Monetary and interest rate policy is monitored, managed, and implemented by the FED to achieve it’s Congress aproved dual mandate of maintaining price stability and full employment
Corporate ESG (Environmental, Social, Governance) (1) Do you…
Corporate ESG (Environmental, Social, Governance) (1) Do you believe it should be a choice or responsibility, explaining your postion (2) Do you believe the Fermainan Business School curriculum aligns with ESG, explaining why or why not?
401(k) plans allow withdrawals for buying a home, medica, an…
401(k) plans allow withdrawals for buying a home, medica, and education. Should withdrawals be taken these purposes? Why or why not?
What percentage do most financial planners recommend alterna…
What percentage do most financial planners recommend alternative investments be as a component of a diversified asset allocation plan:
Underline or highlight if these statements are true or false…
Underline or highlight if these statements are true or false Alternative investments are high risk (true, false) Investing in commodities is speculative, risky, technical requring specialized knowledge (true, false) Money invested in alternatives is money you cannot afford to lose (true, false) Investing in gold is a hedge against geopolitical uncertainty and dollar devaluation (true, false) Gold bars/coins earn income similar to stocks paying a dividend (true, false) Investing in crypto is non-speculative and non-volatile (true, false) Crypto has the potential to become a significant global payment mechanism Crypto has the potential to become a world currency replacing the dollar Investing in crypto has no regulatory, cybersecurity, fraud, or insurance risk