Confirmed Final Questions Flashcards
Define simple interest
Interest that is paid only on the initial amount of the deposit.
Define compound interest
When interest earned in each subsequent period is determined by applying the nominal (stated) rate of interest to the sum of the initial deposit and the interest earned in each prior period.
What is the difference between compound and simple interest?
Simple interest is only ever earned on the initial value, whereas compounded interest is applied to the initial value AND the already earned interest.
What kind of interest can APR measure?
Simple
What kind of interest can yield measure?
Compound
What is growth stock?
A speculative stock that one expects to increase at a faster rate than other companies.
What is a fixed rate loan? What is the major benefit?
A loan where the interest will not change throughout the term. Allows consumers to accurately predict their future payments.
What is a variable/adjustable rate loan? What is the major benefit?
A loan where the interest rate will change at certain intervals throughout the term? Allows for the potential to save money on payments due to decreasing interest rates.
When should you pick a fixed rate loan over a variable rate loan?
When you expect interest rates to go up
When should you pick a variable rate loan over a fixed rate loan?
When you expect interest rates to go down
What are points in regards to loans?
An upfront charge by the lender that becomes part of the loan. Creates a higher upfront cost, but lower interest.
What is one point equal to?
1 percent of the loan amount.
Ex: 3 points on a $100,000 loan is equivalent to a $3,000 cash payment.
What are fixed costs on a car payment?
Monthly payment, registration, insurance, taxes.
What are variable costs on a car?
Maintenance, repairs, fuel.
What is an annual report?
A comprehensive report detailing a company’s activities throughout the preceding year provided to all shareholders.
What does the annual report include?
CEO’s letter – mostly good news about the company
Highlights or selected financial data – short version of financial statements
Management’s discussion and analysis section – more detail than CEO letter
Financial statement and NOTES – issues will be in notes
Auditor’s report – look for language that is not standard
What is long term care insurance and who does it provide for?
The delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty.
What is a capital gain and what is the benefit of capital gains?
A capital gain is the money made when a capital asset (stock, bond, real estate) is sold for more than the original cost. Capital gains are taxed at different (lower) rates than normal income.
What is standard of living?
The necessities, comforts, and luxuries enjoyed or desired by an individual or family.
What is quality of life?
A measurement of one’s personal happiness.
What is the difference between standard of living and quality of life?
Quality of life is a subjective term while standard of living is quantifiable.
What is a single-payment loan?
A loan made for a specified period, at the end of which payment is due in full.
What is an installment loan?
A loan that is repaid in a series of fixed, scheduled payments rather than a lump sum.
What is a lien?
A legal claim permitting the lender, in case the borrower defaults, to liquidate the items serving as collateral to satisfy the obligation.
What is the PE ratio?
Price to Earnings ratio that show investors’ expectations on a stock. Helps to determine if a stock is over or under valued compared to its earnings.
What is the SEC Commission and what does it do?
The Securities and Exchange Commission. An agency of the federal government that regulates the disclosure of information about securities and generally oversees the operation of securities exchanges and markets.
What is the Securities Act of 1933 and what did it do?
Passed by Congress to ensure full disclosure of information with respect to new security issues and to prevent a stock market collapse similar to the one that occurred during 1929–1932. The Act requires the issuer of a new security to file a registration statement containing information about the new issue with the SEC, which it established.
What is EPS?
Earnings per share. Tells investors if a company is profitable or not.
How often should you look at your credit score/report?
At least once a year.
Is it better to buy online instead of from a broker?
Nope! The price is the same because the broker is basing their prices off that same website.
How often should you review and revise your financial plan?
Once a year.
Does paying in cash help your credit score?
No.
What is a rebate? Is it better than 0% interest?
Rebate is money back. It is better.
Which is better? Low interest or a low minimum monthly payment?
Low interest.
What is collateral on personal loans?
An item of value such as a car or house put up to secure the loan. Ensures the lender can make (some of) their money back if you don’t pay.
What is a market order?
An order to buy or sell a security at the best price available at the time it is placed.
What is a limit order?
An order to either buy a security at a specified or lower price or to sell a security at or above a specified price.
What is a stop-loss order?
An order to sell a stock when the market price reaches or drops below a specified level.
What is the difference between a limit order and a market order?
Market orders trigger immediately whereas limit orders allow for action to be delayed.
What is a personal property floater? (PPF)
An insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner’s policy.
What is an umbrella policy?
An insurance policy providing excess liability coverage for homeowner’s and automobile insurance as well as additional coverage not provided by either policy.
What is the difference between a PPF and an umbrella policy?
PPF offers more coverage while an umbrella policy offers broader coverage.
What is a home equity loan?
A loan where you use your home equity as collateral. Any interest paid is tax deductible.
What is a home equity line of credit?
A revolving line of credit taken out on home equity for large purchases.
What is the difference between a HEL and an HELOC?
An HEL has a higher interest rate and comes in one lump sum, while an HELOC allows you to borrow multiple times (under a max).
What is a sign the economy is strong?
High employment opportunity
What is the ACA?
The Patient Protection and Affordable Care Act (2010). Health care reform legislation that requires all Americans to have or buy health insurance, prohibits insurers from denying coverage or setting unrealistically high premiums for pre-existing medical conditions, establishes health care insurance exchanges, and requires small firms to provide health insurance coverage for its employees. Life-time dollar limits on total insurance coverage are prohibited.
Debt safety ratios based off Take-Home Pay
10% is low, 15% is manageable, and 20% is high. Lower is better. More than 20% is difficult to pay back.
What is Medicare?
A health insurance plan administered by the federal government to help persons age 65 and over, and others receiving monthly Social Security disability benefits, to meet their health care costs.
What is Medicaid?
A state-run public assistance program that provides health insurance benefits only to those who are unable to pay for health care.
What is a down payment on a home?
A portion of the full purchase price provided by the purchaser when a house or other major asset is purchased; often called equity.
What is the loan to value ratio?
The maximum percentage of the value of a property that the lender is willing to loan. If the loan-to-value ratio is 80 percent, the buyer will have to come up with a down payment equal to the remaining 20 percent.
When the down payment is less than 20%, what will the lender usually require?
Private Mortgage Insurance (PMI). An insurance policy that protects the mortgage lender from loss in the event the borrower defaults on the loan.
How many tax filing statuses are there? What are they?
Five! Single, married filing jointly, married filing separately, head of household, qualifying widow or widower with dependent child.
What is an IRA?
An Individual Retirement Account. Instance of tax deferrment bc you aren’t taxed until you start pulling money. Reduces taxable income.
What is a Roth IRA?
Contribute after-tax dollars. Withdrawals aren’t taxed after 59.5.
What is the primary purpose of auto insurance?
Protects you against auto incidents outside of your control. Liability, medical, uninsured motorist, vehicle damage.
When you put money into an account, what happens to the ledger?
Goes up
What is a budget?
A financial forecast.
What is a grace period for policy holders? How long is it?
It permits the policyholder to retain full death protection for a period after missing a premium payment date. Usually one month, 31 days.
What is the goal of tax planning?
To maximize the amount of money you keep by legally minimizing the taxes you have to pay. Not tax evasion though. Just tax avoidance.
What is speculating?
Investing in assets with the Hope of big gains but the chance of big loss.
Speculating vs. Investing
Investors take a systematic approach to growing their wealth, buying assets with reasonable levels of risk in exchange for long-term growth. Speculators, on the other hand, buy assets that may experience rapid growth but can also lose their entire value if they go out of favor.
What is solvency/insolvency?
Solvency is when you have enough funds to cover the payments you owe. When you are insolvent, you cannot meet your financial obligations.
Simplest kind of homeowner insurance?
HO-1. Very basic and narrow.
What is the burden of government taxation on the investor?
No savings
What HO policy do you need for a condo?
HO-6
What does the Rule of 72 do?
Shows how many years it will take to double yo money.
Treasury Bonds vs Municipal Bonds
Municipal bonds are tax-exempt
What is a balance sheet?
A snapshot of your finances that represents one day out of the year. What are you worth today?
Advantages of universal life?
Flexibility, Savings feature (current interest)
Day trading vs. Investing
Day trading has a very short time horizon, buy and sell within the same trading session for quick money. Investing is long term.
Disadvantages of universal life?
Changing premiums and protection levels, High charges and fees
What is beta?
An index of the price volatility for a share of common stock; a reflection of how the stock price responds to overall market forces. Higher = riskier
What are employee benefits?
Non-wage compensation provided to employees by their employer like insurance, 401k, and educational assistance
What is workers’ compensation coverage?
Health insurance required by state and federal governments and paid nearly in full by employers in most states; it compensates workers for job-related illness or injury.
