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Questions and Answers
What is net worth?
What is net worth?
Net worth is calculated by subtracting liabilities from assets.
Which of the following are examples of assets? (Select all that apply)
Which of the following are examples of assets? (Select all that apply)
- Real Estate (correct)
- Stocks (correct)
- Cash (correct)
- Liabilities
What are liabilities?
What are liabilities?
Liabilities include balances on credit cards, personal loans, mortgages, and other debts.
Liquid assets are preferable for lenders.
Liquid assets are preferable for lenders.
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What are gift funds?
What are gift funds?
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Study Notes
Net Worth
- Defined as the difference between total assets and total liabilities.
- A higher net worth indicates strong financial management and the ability to handle loans and emergencies.
Assets
- Categories include cash, stocks, bonds, real estate, vehicles, and other properties.
- Liquid assets are favored as they can be rapidly converted to cash.
- Lenders prioritize net equity in real estate rather than just the property’s appraised value.
Liabilities
- Comprise debts such as credit card balances, personal loans, mortgages, and installment debts.
- Understanding liabilities is crucial for assessing overall financial health.
Gift Funds
- Refers to monetary gifts from relatives used to supplement a loan applicant's liquid assets.
- Requires a formal gift letter confirming the funds are not to be repaid.
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