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PFP First exam > EXAM #1 > Flashcards

EXAM #1 Flashcards

1
Q

How is wealth built?

A

By using net cash flows to invest in assets or pay down liabilities

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2
Q

What happens when assets increase?

A

net worth increases

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3
Q

What happens when liabilities decrease?

A

net worth increases

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4
Q

What is a personal cash flow statement?

A

a financial statement that measures a persons inflows and outflows

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5
Q

What are some examples of cash inflows?

A

Salaries, interest, dividends and all other forms on income

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6
Q

What are some examples of cash outflows?

A

all expenses both large and small

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7
Q

how do you calculate net cash flows?

A

Inflows - outflows

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8
Q

How do you calculate net worth?

A

assets - liabilities

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9
Q

What happens in liabilities > assets?

A

Negative net worth and insolvent

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10
Q

What happens in liabilities < assets?

A

positive net worth

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11
Q

The main takeaways from time value of money?

A

Calculate future value
calculate present value
determine payments
solve for rates

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12
Q

marginal tax rates

A

the amount of additional tax paid for every additional dollar earned as income

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13
Q

Steps to determining your tax liability

A
  1. Identify filing status
  2. determine marginal tax rates
  3. apply tax rate to taxable income
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14
Q

Tax credits vs deduction

A

tax credits are far better and more valuable

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15
Q

What is a standard deduction?

A

a fixed amount that can be deducted from adjusted gross income to determine taxable income

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16
Q

Standard deduction is…

A

not affected by income

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17
Q

What are itemised deductions?

A

a specific expense that can be deducted to reduce taxable income

18
Q

Interest expense is…

A

Interest paid on borrowed money- primarily interest mortgages

19
Q

State income tax is…

A

An income tax imposed by some states on people who receive income from employers in that state

20
Q

Local income tax…

A

Also is deductive when itemising

21
Q

Progressive tax

A

Tax burden increases as income increases
ex. US income tax

22
Q

Regressive tax

A

tax burden decreases as income increases
ex. sales tax

23
Q

What are the three types of income tax?

A

Federal, State, Local

24
Q

What is the IRS?

A

The IRS stands for Internal Revenue Service

25
Q

What does the IRS do?

A

The IRS is the government agency responsible for collecting federal taxes.

26
Q

What is the Internal Revenue Code?

A

Tax laws passed by congress
- The code governs all judicial proceedings and tax disputes

27
Q

When must tax returns be filed by?

A

April 15th

28
Q

When does the tax year for federal income tax end?

A

December 31

29
Q

If you want to file an automatic extension, it must be by …

A

April 15th but it gives you until October 15th to file without penalties

30
Q

Who must file personal income taxes?

A

US citizens
income over filing requirement
Net earnings from self- employment

31
Q

Payroll tax

A

FICA

32
Q

FICA

A

Federal Insurance Contribution Act

33
Q

What is FICA?

A

Taxes payed to fund the social security system and medicare

34
Q

Tax payers must file a status for their tax return because different rates are associated with each status

A

single, married filing jointly, married filing separately, head of household, qualifying widow(er) with dependent child.

35
Q

Simple interest is…

A

interest calculated on original principal only

36
Q

Compounding interest is…

A

The process of earning interest on interest

37
Q

How often can you compound?

A

quarterly, monthly, daily or even on a continuous basis

38
Q

Money grows ______ as teh compounding period becomes _______

A

Faster, shorter

39
Q

Discounting

A

the process of obtaining present values

40
Q

Annuity

A

regular payments

41
Q

Monthly compounding

A

12 compounding period

42
Q
A

PFP First exam (1 decks)

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