Exam #1 Flashcards
A goal is …
An end that one tries to attain
Types of goals are …
1.
2.
3.
4.
5.
6.
Short-term, intermediate, long-range, societal, family, personal
Objectives are …
Subsets of goals
Short-term goals are …
Generally accomplished in several months
Intermediate goals are …
Less than one year to complete
Long-term goals are …
One or more years to complete
What is the best articulated goal?
A. Get completely out of debt in 2 years
B. Retire comfortably at age 60
C. Save $8,000 for a vacation to Europe in 5 years
C.
Compound Interest Equation:
M = P ( 1 + i ) ^ n
M =
P =
i =
n =
Final amount (including principal), principal amount, interest rate per year, number of years invested.
Qualities of a ______
1. Not for profit,
member owned,
charters
2. National Credit
Union
Administration
3. Usually pay higher
interest rates,
lower fees
Credit union
Qualities of a ______
1. For profit, owned by
stockbrokers
2. Federal Deposit Insurance
Corporation
Bank
Qualities of a ______
1. Advantages – higher interest
2. Downside – no physical
location; ATM fees could be
high
Internet only bank
Regulatory Agencies:
1. _______ = Federal Deposit Insurance Corporation
2. _______= National Credit Union Administration
Banks, Credit Unions
________ : a measure of the ability of a company to pay off its short-term liabilities.
Liquidity Ratio
________ : all your monthly debt payments divided by your gross monthly income.
Debt-to-Income
Ratio
_________: Documents financial
transactions
Financial records
Examples of assets are …
1.
2.
3.
A car, a house, valuables
Examples of liabilities or debts are …
1.
2.
3.
Mortgage, loans, credit card debt
Examples of income are …
1.
2.
3.
Salary, investments, allowance
Examples of expenses are …
1.
2.
3.
Utility bill, insurance, groceries
A _______, or spending plan, is necessary for
successful financial planning.
Budget
________ is the difference between the amount budgeted and the actual amount received.
Budget variance
__________ are …
1. Usually paid in the same amount each time period, often contractual
2. Scheduled payments
3. Difficult to reduce
4. Must be paid
Fixed expenses
__________ are …
1. Controllable expenses that usually occur in the short run
2. Individual has considerable control
Variable expenses
An ______ is …
1. Monetary (cash, checking/savings account)
2. Tangible (furniture, car, computer, etc.)
3. Investment (stocks, real estate, retirement)
Asset
A ______ is …
Short term (less than 1 yr) vs Long Term (over a yr)
Liability
_______: goods and services exchanged with the promise to repay at a later date
Credit
________ – what is loaned
________ – what you pay
Principle, interest
__________:
1. Easy & convenient
2. Emergencies
3. Owning/using products or
services while paying for it
4. Obtaining expensive
products or services
(education, home)
5. Special offers & bonuses
6. Establishing credit history
Good uses of credit
__________:
1. Can reduce financial
flexibility
2. Ties up future income
3. Tempting to overspend and
spend impulsively
4. Interest (APR)
5. Finance charges and fees
6. Identity Theft
Downside of Credit
(5 C’s of Credit)
__________ refers to the borrower’s attitude towards his or her credit obligations.
Character
(5 C’s of Credit)
_________ is the borrower’s ability to pay additional debts.
Capacity
(5 C’s of Credit)
_________ is the borrower’s assets or net worth.
Capital
(5 C’s of Credit)
_________ is a valuable asset that is pledged to ensure loan
payments.
Collateral
(5 C’s of Credit)
_________ affect a borrower’s ability to repay a loan.
Conditions
(Forms of Credit)
_____________:
1. Credit extended in advance
2. Borrow up to your limit
Open-ended (revolving credit)
(Forms of Credit)
_____________:
1. Repay amount plus interest
2. Number of equal payments
Closed-ended (installment credit)
(Forms of Credit)
_____________:
1. Secured by collateral
2. If delinquent, asset is
taken
Secured
(Forms of Credit)
_____________:
1. No collateral
2. If delinquent, may go to
court
Unsecured
_________: Open-ended and unsecured loan; can carry a balance
Credit card
_________: Funds come directly from your checking account (NOT a loan)
Debit card
___________ - interest
1. Calculated the same way-
best to use for comparison
Annual Percentage Rate
(APR)
___________ - yearly charge (not all cards)
Annual fee
___________ - max amount of credit extended
Credit limit
___________ - charge to set up loan (home loans)
Origination fee
____________ - length of time you have to pay loan
Loan term
____________ - time you have before you start accumulating interest
Grace period
APR/365 days in a year = ________
Daily rate
Total Billing Amt/days in cycle = _________
Avg daily balance
___________:
1. Prioritizes your smallest
debts first, regardless of
interest rate.
2. List of all of your debts,
smallest to largest.
3. Pay the minimum balance
on each one, except the
smallest. For that one,
dedicate as much cash as
possible each month until it
is repaid. Then move on to
the second-smallest debt.
Snowball method
___________:
1. Organize debt by interest
rate
2. High to low
3. Pay less in interest and
pay debts off quicker
Avalanche method
