1.3.1. Client John Smith gives you the following account balances: $3,000 in cash; $8,000 in checking account; $10,000 in a certificate of deposit (CD) with six months to maturity; an investment in a limited liability partnership valued at $10,000; $3,500 in accounts receivable (invoiced but not yet paid); an automobile with a current value of $9,000 that is paid off (no loan); $2,500 in taxes due in three months; and a house with a value of $150,000 with an outstanding mortgage loan balance of $110,000, of which the payments over the next year total $7,000. Based only on this information, what is John's CURRENT RATIO?

1. 0.98
2. 1.37
3. 2.58
4. 3.14

1.3.2. Client Sally Rogers has a consumer debt ratio of 15% due to credits and student loans. If her mortgage loan application is accepted, her housing cost ratio would be 27%. Is she likely to qualify for a conforming mortgage loan in the United States?

1. No, the consumer debt ratio is too high
2. No, the total debt ratio is too high
3. Yes, only the house cost ratio applies and it is less than 28%
4. Yes, both ratios apply and they are under the limits

1.3.3. In regard to financial statement ratios, each of the following is true EXCEPT:

1. Housing cost ratio = (principal + interest)/MGI or rent/MGI, where MGI is monthly gross income, but excludes taxes and insurance
2. Solvency ratio = Total Assets / Total Liabilities
3. Savings ratio = annual savings / annual gross income
4. Total assets - Total Liabilities = Net Worth

Answers:

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