MTE AUGUST 13,3015 INSTRUCTIONS UNIVERSITY ITY OF NAIROBI MODULE II DEGREE (NAIROBI DAY) AFF PROGRAMME 201422915 COMMERCE DF1701 TERSONAL PTNANCE Anempt all questions, clearly showing any working. (ii) What factors uffect your cash inflows and outflows? Explain. (12 Marks) (i) Describe the process of creating a personal budget. (c) Name, briefly define and give examples of three classifications of usets in a parsonal balance shee (1) Marks) QUESTIONTWO (ii) Uring appoprate examples distinguish between depositiony and mon-depository institutions (16 Marks) (B) Inconsidering investments with different degrees of risk what factors will influence an invesor's decisions? . (5 Micks) What is a risk-free rate?Give an example of n investigent with wrist-frice rais. (4 Marks) Page 1 of 2 TIME: 2.00 p.M. -4.09 P.M. (4 Marks) QUESTIONTIMER (a) What information must boreowers supply to len tersis the loses septication.process Why is this information important to ienders? (6 Mules (b) How does collatecal work? (4) Mont (c) What is a home equity Jann? Describe how a home equity own works (5 Marks (d) What are the steps in buying a car?What financial criveri Discuss exch brisily. (10 Marks) OUTSTION FOUR (a) What is term insurance?What factors determine the What Is decreasing terms insurance? (13 Marka) (b) Describe the badget method of determining the unound of the insus showing all the elements to be considered (12) More

QUESTION ONE<br /><br />(ii) Factors that meet your cash inflows and outflows include income sources such as salary, investments, and other sources of revenue. Cash outflows include expenses such as rent, utilities, groceries, and other bills.<br /><br />(i) The process of creating a personal budget involves identifying income sources, estimating expenses, setting financial goals, and tracking spending to ensure that expenses do not exceed income.<br /><br />(c) Three classifications of users in a personal balance sheet are:<br />1. Asset owners: Individuals who own assets such as cash, investments, and property.<br />2. Liability holders: Individuals who owe money to others, such as loans or credit card debt.<br />3. Equity owners: Individuals who have an ownership stake in a business or investment.<br /><br />QUESTION TWO<br /><br />(ii) Depository institutions are financial institutions that accept deposits from customers and provide loans, such as banks and credit unions. Non-depository institutions do not accept deposits but provide financial services such as insurance and investment advice.<br /><br />(b) Factors that influence an investor's decisions when considering investments with different degrees of risk include potential return, risk tolerance, investment goals, and market conditions.<br /><br />What is a risk-free rate? The risk-free rate is the return on an investment with zero risk, such as a government bond. An example of an investment with a risk-free rate is a U.S. Treasury bond.<br /><br />QUESTION THREE<br /><br />(a) Borrowers must supply information such as credit history, income, assets, and liabilities to lenders during the loan application process. This information is important to lenders as it helps them assess the borrower's creditworthiness and ability to repay the loan.<br /><br />(b) Collateral works as a security for a loan. If the borrower defaults on the loan, the lender can seize the collateral to recover the outstanding debt.<br /><br />(c) A home equity loan is a type of loan that allows homeowners to borrow against the equity in their home. It works by using the homeowner's equity as collateral, and the loan amount is typically used for major expenses such as home renovations or education.<br /><br />(d) The steps in buying a car include researching car models, determining a budget, obtaining financing, negotiating the price, and completing the purchase. Financial considerations include the down payment, monthly payments, interest rates, and total cost of the loan.<br /><br />QUESTION FOUR<br /><br />(a) Term insurance is a type of life insurance policy that provides coverage for a specific period of time, such as 10 or 20 years. The factors that determine the cost of term insurance include the age, health, and lifestyle of the insured, as well as the length of the term and the amount of coverage.<br /><br />What is decreasing term insurance? Decreasing term insurance is a type of life insurance policy where the death benefit decreases over time, typically in line with the outstanding balance of a mortgage or loan.<br /><br />(b) The budget method of determining the amount of life insurance involves estimating income, expenses, and financial obligations, and then determining the amount of coverage needed to provide financial protection for dependents in the event of the insured's death. Elements to be considered include income replacement, funeral expenses, outstanding debts, and future expenses such as education and retirement.