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FI 370 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Short Term Debt

A

Any debt lasting 90 days - 1 year

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2
Q

Long Term Debt

A

Debt lasting 1-3 years or longer

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3
Q

Unsecured Debt

A

Does not have any collateral behind it

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4
Q

Secured Debt

A

Backed by some form of collateral behind it
-in a better position than unsecured

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5
Q

Close-End Credit

A

One time loan for specific purpose that you pay back
-Ex: Loan, Mortgage

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6
Q

Open-End Credit

A

Use as needed until reaching credit max
-Ex: Credit Card

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7
Q

Fixed-Rate Mortgage:

A

Interest rate is fixed and does not change over the life time of the loan

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8
Q

Adjustable Rate Mortgage(ARM):

A

Interest rate varies w/market and index
-Rate is based on a formula
-Possible Cap/Floor for the rate

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9
Q

Front End Ratio:

A

(Monthly Housing Expense/ Borrowers gross monthly income)
-Used to find max $ creditors should lend

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10
Q

Back End Ratio:

A

(Borrowers Total Debt/ Gross Monthly Income)

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11
Q

Debt Payments to Income Ratio:

A

(Monthly Debt Payments/Net Monthly Income)
-Consumer credit payments should not exceed 20% of your net income

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12
Q

Debt to Equity Ratio:

A

Total Liabilities / Net Worth
-Should be less than 1

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13
Q

3 Major Credit Reporting Agencies(CRA):

A

1) Experian
2) Equifax
3) Transunion
-Get 1 free report per year

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14
Q

Credit Report Contains:

A

1) Identifying Information
2) Credit History
3) Public Records
4) Inquiries Section

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15
Q

FICO Credit Score Makeup:

A

35% - Payment History
30% - Amounts Owed
15% - Length of Credit History
10% - New Credit
10% - Types of Credit Used

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16
Q

Justin Castelli Notes:

A

-Where you start is not where you end up
-Be careful of “advice”

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17
Q

4 Types of Taxes:

A

Taxes on:
1) Purchases
2) Property
3) Wealth
4) Earnings

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18
Q

Tax Form 1040

A

Where you file your taxes

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19
Q

Schedule 1

A

Additional other income + expenses

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20
Q

Schedule A

A

Itemized Deductions

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21
Q

Schedule B

A

Taxable income/dividends that are received

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22
Q

Schedule D

A

Capital gain from investments

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23
Q

Adjusted Gross Income(AGI):

A

Gross income after certain deductions have been made
-Contribution to IRA, SEP or SIMPLE Retirement.
-Penalties for early withdrawal of savings
-Alimony payments
-Student loan interest deduction

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24
Q

Itemized Deductions

A

Specific items that give you deductions
-Medical expenses, contributions to charity
-Schedule A

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25
Q

Marginal Tax Rate

A

Rate you will pay on your last highest dollar of income

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26
Q

Effective Tax Rate

A

Average rate you pay on your total taxable income
ETR = Taxes Owed / Taxable Income

27
Q

Tax Credit

A

Amount subtracted directly from the amount of taxes you owe

28
Q

Tax Deduction

A

Reduces the income that is subject to taxes

29
Q

Form 4868

A

Allows auto 6-month extension to file the federal return

30
Q

W2 Form

A

Reported salary and wages by your employer
-reported by Jan 31st

31
Q

To Minimize Taxes:

A

1) Same or lower tax rate next year
-Accelerate deductions
-Delay income
2) Higher tax rate next year
-Delay deductions
-Accelerate income

32
Q

Pure Risk:

A

Personal, property, liability risk
-Insurable, chance of loss
-Accidental/unintentional

33
Q

Life Insurance:

A

Protect someone who depends on you from financial loss related to your death

34
Q

Estimating Life Insurance Needs:

A

1) 70% or your salary for 7 years
2) DINK = 1/2 debts + funeral expenses
3) Non-working spouse = # of years until youngest is 18 * $10,000

35
Q

Types of Life Insurance:

A

1) Temporary/Term
2) Whole Life/Straight Life
3) Universal Life
4) Variable Life
5) Variable Universal

36
Q

Temporary/Term Insurance

A

Protection for specified period of time

37
Q

Whole life/straight life

A

Pay premium as long as you live

38
Q

Universal life insurance

A

Gives you more direct control (can be changed)

39
Q

Variable life insurance

A

Fixed annual premium

40
Q

Variable universal insurance

A

Blended product from universal + variable policies

41
Q

Education Needs Analysis

A

1) Estimate college cost in current dollars
2) Project costs allowing for inflation
3) Determine investment amount
-Lump sum vs Periodic Payment

42
Q

FV Formula

A

PV x (1+r)^n

43
Q

PV Formula

A

FV/ (1+r)^n

44
Q

Education Financing Options

A

1) Pay as you go
2) Find someone to help you pay
3) Save now for later
-529 Plan, Coverdell Education Savings Account, U.S Savings Bonds, IRA

45
Q

What are the 2 tax deferred education savings account?

A

-529 Plan
-Coverdell Education Savings Account

46
Q

Coverdell Education Savings Account

A

Exclusively for qualified education expenses
-Exemption from federal taxation
-max of $2k per year per beneficiary

47
Q

Expected Family Contribution Formula

A

Student Contribution + Family Contribution

48
Q

Will

A

The legal declaration of a person’s mind as to the disposition of his or her property after death
-Transfers property according to your wishes at death

49
Q

Die intestate

A

Die without a will
-State law determines distribution of assets

50
Q

Will Executor

A

Takes control of assets of the estate

51
Q

Will Guardian

A

A guardian assumes the responsibility for providing children with the personal care and managing the estate for them

52
Q

Durable Power of Attorney

A

Legal document authorizing someone to act on your behalf
-Can be general or limited in nature
-When you are still alive but you are unable to do anything(In a coma)

53
Q

Codicil

A

Change to your will

54
Q

Advance Directive:

A

Additional things you want
-Health care proxy: tell doctor how you want to be treated
-Letter of last instruction

55
Q

Trust

A

A legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries
-takes care of or manages your property
-distribute your assets to your heirs
-all assets are taken out of your name and put in the name of the trust

56
Q

Benefits of trusts

A

-Reduce estate taxes
-Avoid probate and transfer your assets immediately
-Free you from managing assets
-Provide income for a surviving spouse
-Ensures property serves desired purpose after death

57
Q

Types of Trusts:

A

Living Trust: Set up while you’re alive to manage your property.
Testamentary Trust: Created by your will, after you pass away.
Credit-Shelter Trust: Helps reduce estate taxes, typically for married couples.
Life Insurance Trust: Holds life insurance policies to avoid estate taxes and control the payout.

58
Q

Revocable vs Irrevocable Trust

A

-Revocable: you can change it during your lifetime
-Irrevocable: you cannot change the terms

59
Q

Probate Process

A

The process of which the court validates the will and distributing a dead persons assets.

60
Q

Intestate succession

A

the laws governing the allocation of a deceased person’s assets when they die without a valid will

61
Q

Testate succession

A

When a person dies and leaves a valid will

62
Q

Tax form 706

A

Estate tax form

63
Q

3 required documents:

A

1) Will
2) Durable power of attorney
3) Advance Directive

FI 370 (2 decks)

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