Pat and Marie have the following expenses and account balances: Pat’s annual 401
ID: 2329306 • Letter: P
Question
Pat and Marie have the following expenses and account balances:
Pat’s annual 401(k) plan contribution $ 16,500
Pat’s annual salary $100,000
Current liabilities $ 24,000
Housing costs (P&I&T&I) monthly $ 2,167
Cash & Cash equivalents $ 18,000
Monthly nondiscretionary cash flows $ 6,000
Monthly debt payments other than housing $ 500
* Pat’s employer matches $1 for $1 up to 3% of Pat’s salary in his 401(k) plan.
1. Based on the information above, calculate Pat and Marie’s current ratio in numbers.
2. Based on the information above, calculate Pat and Marie’s housing ratio 1 in numbers.
3. Based on the information above, calculate Pat and Marie’s housing ratio 2.
4. Based on the information above calculate their savings rate:
5. Based on the information above, calculate Pat and Marie’s emergency fund ratio in numbers.
3
a. 0.75:1Explanation / Answer
We can calculate required ratios for pat and maries as follows.
1. Current Ratio
Current Ratio can be calculate by dividing all current assets by all current liabilities. in the given problem total of current assets would be $18000 of cash equivelants and current liabilities given as $ 24000., so ratio will be
Current Ratio = Current Assets / Current Liabilities
= 18000 / 24000 = 0.75 : 1
2. housing Ratio (1) it can be calculated by deviding all monthly housing obligations by gross monthly income, so
Monthly housing obligation will be = $ 2167 Given
and Gross monthly income will be = Annual Income / 12 = $100000 / 12 = $8333.33 = $8333
So Housing Ration 1 = Monthly Morgage Obligation / Gross Monthly Income
= 2167 / 8333 = 26%
3. Housing Ratio 2 it can be caculated by deviding all monthly margage obligations by gross monthly income, so it will be
Housing Ratio 2 = (monthly housing obligation + Other debt obligation) / Gross Monthly Income
= (2167 + 500) / 83333 = 32%
4. Saving Rate = It is the ratio of gross annual saving to gross annual income
gross annual saving = pat 's contribution + employers's contribution = 16500 + 3000 = 19500
Gross annual income = $100000 (given)
So saving Rate = (19500 / 100000 ) x 100 = 19.5%
5. Emergency Fund Ration = it is the ration of all liquid assets to monthly expenses, which provides the safety level of monthly expenses in case of no income. it will be as below
= Liquid Assets / Monthly Expenses
= 18000 / 6000
= 3 Times
So we can calculate the ratios fro the pat in this way.