Debts, Investing & Investment Accounts

Question 1

what is a loan?`

Answer 1

property, money or other material goods given to another party in exchange for future repayment

Question 2

What are some types of loans?

Answer 2

equipment
property
vehicle
chattel

Question 3

What is APR?

Answer 3

annual percentage rate of interest

Question 4

What are types of interest?

Answer 4

simple - solely calculated on the principle amount
e.g. GIC
compound - the rate or frequency that the interest is applied to the loan (monthly, annually)
e.g. term loan

P((1+r/n)^nt - 1)
P - principle
R - interest
N - number of compounding periods
T - time

Question 5

What is an interest term?

Answer 5

period in which the interest rate is applied
at the end of each term the rate must be renewed
longer the term the higher the rate will be

Question 6

what is amortization?

Answer 6

• length of the loan

- longer the loan the lower your principle payments will be but the higher your cost of borrowing

Question 7

What are the 3 typical structures with a loan?

Answer 7

1. fixed rate (fixed for full term)
2. variable rate (prime + interest premium)
3. open/closed (open can make more payments than structured, closed can’t pay off sooner)

Question 8

What are some special types of loans?

Answer 8

mortgages
bridge loans
credit lines
leases
student loans (no interest until youre done school)
RSP loan (hike up RSP injections

Question 9

How does interest rate and the down payment affect your mortgage rates?

Answer 9

more money down = less interest rates and smaller mortgage payments

Question 10

What are some important things to know about credit cards?

Answer 10

interest accrues daily
payments monthly
19.9% interest
21 business day grace period
cash advances (avoid them though)
credit history compiled on credit bureau

Question 11

How does interest work on a CC?

Answer 11

accrues from date of purchase
compounds monthly
interest is charged on the statement date`

Question 12

What is TVM?

Answer 12

present value of money is worth more than its future value.

Question 13

Why is money worth more in the present time vs future time?

Answer 13

inflation
interest
potential earning capacity
opportunity cost

Question 14

What are examples of high risk investments?

Answer 14

futures
stocks
high yield bonds
precious metal/gems

Question 15

What are examples of medium risk investments?

Answer 15

blue-chip
balanced mutual funds
income producing properties

Question 16

What are examples of low risk investments?

Answer 16

bonds

bank notes

Question 17

What is an example of a secure investment?

Answer 17

GIC (guaranteed investment certificate)

- money in is guaranteed but interest is not

Question 18

How do you determine your risk preference?

Answer 18

time horizon (longer time will smooth out volatility)
objectives
tolerance of fluctuations

Question 19

What is a stock? how are you paid from them?

Answer 19

share of a company
piece of ownership
paid in dividends from capital gain (how much your stock goes up)
voting rights in the company

Question 20

What is a bond?

Answer 20

debt instrument with a promise to pay back the money with interest

• paid with interest
• guaranteed return

Question 21

What is the benefit of capital gain on taxation?

Answer 21

only 50% of capital gain is taxable

Question 22

What is a mutual fund?

Answer 22

composition of stocks and bonds owned by you, alongside a multitude of other investors
- run by a fun manager (takes portion of return as a fee - Management expense ratio MER)

Question 23

What is the benefit of mutual funds?

Answer 23

a way to invest in multiple stocks without managing them

Question 24

What are ETFs (exchange traded funds)?

Answer 24

“really large mutual fund”
special time of stock/security that tracks the index
- mirrors the market
- you can get ETF on entire markets going up
- lower medium risk
- heavily diversified

Question 25

What are the key take aways from investing?

Answer 25

invest early
invest often
invest enough
understand comfort level
be rational not emotional

Question 26

where are investments stored?

Answer 26

Investment accounts
“portfolio”
some have contribution limits

Question 27

what type of investment accounts are there?

Answer 27

registered and non-registered

Question 28

what are registered investment accounts?

Answer 28

given tax deferred status from government
registered with SIN
limitations to withdrawals and contributions

Question 29

What are non-registered investment accounts?

Answer 29

tax rules specific to investment types

no penalties to taking money out or putting in

Question 30

What are types of non-registered investment accounts

Answer 30

savings deposit
GIC
Investment accounts (stocks, bonds, mutual funds, GIC)

Question 31

What are savings deposits?

Answer 31

a type on non-registered IA

• interest bearing
• principle is guaranteed
• low interest rate
• more interest the larger the balance
• interest is calculated per average daily deposit

Question 32

What is a GIC? what are the different types?

Answer 32

guaranteed investment certificate

• held for a term
• interest is paid out upon maturity

Types:
locked in
redeemable
5 in 1 ( 5 year locked but releases 20% every year)
building block

Question 33

What are three ways in which you can be paid from your investment accounts?

Answer 33

capital gains
interest income
dividends

Question 34

What is capital gain vs interest income and how are they taxed?

Answer 34

investment increases in value.
- taxed at 50% of gain
inte
interest gained from interest rate
- 100% taxable

Question 35

What are dividends? how are they taxed?

Answer 35

paid out from corporations
Tax:
- grossed up 38%
- dividend tax credit of 15%

Question 36

What are types of registered investment accounts?

Answer 36

TFSA
RRSP
RESP

Question 37

how are registered investment accounts taxed?

Answer 37

taxed as employment income upon withdrawal (except: TFSA and special cases)
100% taxable upon redemption

Question 38

What are TFSAs?

Answer 38

tax free savings account

• eligible at 18
• can hold mutual funds, stocks, bonds, savings deposit, GICs
• all gains are not taxable
• have annual contribution limits

Question 39

What are RRSPs?

Answer 39

registered retirement savings plan

• can hold mutual funds, stocks, bonds, savings deposit, GICs
• tax deferred (don’t pay tax until you withdrawal)
• contribution limit
• company pension plans will reduce your RRSP contribution limit
• unused contribution are carried forward
• over contribution penalty

Question 40

What types of withdrawal plans are there for RRSPs?

Answer 40

• first time home buyers
• lifelong learning plan (LLP)
  you or spouse going back to school

(need to be paid back into RRSP, “like a loan to yourself”)

Question 41

What are RESPs?

Answer 41

Registered education savings plan

• can hold mutual funds, stocks, bonds, savings deposit, GICs
• special mutual funds
• lifetime contribution limit of 50,000 until child reaches 31
• Canada education savings grant

Question 42

What are some other types of registered accounts?

Answer 42

spousal RRSP (lower tax bracket)
RPP (registered pension plan)
LIRA (locked in retirement accounts
Registered income fund - will automatically pay you out when you reach 71 "like RRSP"
registered disability savings plan
- if you have a physical or mental disability
- cannot work
- government will top up