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UGBA 135 > EXAM PREP MIDTERN ONE > Flashcards

EXAM PREP MIDTERN ONE Flashcards

1
Q

Why is a dollar today usually worth more than a dollar one year from now?

A
  1. Its more certain, 2. Impatience to consume, 3. Could be invested, 4, Inflation
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2
Q

Where should you calculate inflation

A

Bureau of Labor Statistics consumer price index inflation calculator

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3
Q

What is the measure of the amount of purchasing power of a dollar in different periods

A

Consumer Price Index (CPI)

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4
Q

An ________ is an agreement between you and a bank, brokerage, credit card issuer, a utility company

A

Account

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5
Q

An ____________ is a record of transactions

A

Account

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6
Q

What is an account?

A

An agreement

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7
Q

What are common features of all accounts

A

Name, Number, Record of Transactions, Current Balance

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8
Q

What are three examples of accounts

A

Checking, Savings, Loan

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9
Q

Account that has you Deposit and withdraw money, auto deposit pay check, write check, may include debit card, electronic transfers, low or no interest, may require monthly fee, balance is how much money you have

A

Checking account

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10
Q

Account that has you, deposit and withdraw, earn interest, make electronic transfers, Balance

A

Savings account

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11
Q

Account that has a bank lend you money, you make payments, charged interest, balance

A

Loan account

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12
Q

Account that is typically opened by a bank and you deposit money/stocks and you receive interest of dividend payments. Buy and sell stocks, retirement accounts

A

Investment account

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13
Q

Account that has you make charges to a credit card, make payments, charge interest for unpaid balance

A

Credit card account

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14
Q

What does the rule of 72 calculate

A

Time needed to double money; Interest rate needed to double money

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15
Q

RULE OF 72: 8% rate of return

A

72 / 8% = 9 years

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16
Q

RULE OF 72: 12% rate of return

A

72/ 12% = 6 years

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17
Q

Rule of 72: rate you would need to double in 4 years

A

72 / 4 years = 18%

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18
Q

What is the difference between compound and simple interest?

A

Simple: applies to original value; Compound: applies to the new value (Interest on Interest)

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19
Q

Fixed Variable

A

A cost that does not change every month

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20
Q

Variable Expense

A

A cost that will change every month

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21
Q

In a budget, what should savings be treated as?

A

An expense

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22
Q

What should you use instead of a savings account

A

High-Yield Savings account

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23
Q

What amount of months should an emergency fund contain

A

3-6 month of fixed expenses

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24
Q

What you should you look at when trying to find a High-Yield Savings account

A

Competitive rate (4.5%), National brand name, ability to link external accounts, good customer service, FDIC insurance

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25
Q

Strategies to increase savings rate

A
  • increase future income increases, annual raises, save half spend half, put on auto- pilot, use payroll program at employer, use apps
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26
Q

Paying on-time counts for 35% of your FICO score, how can you ensure you always pay on time?

A

Enable auto pay for the statement balance, enable paper statements

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27
Q

Always pay your _____ Balance by the_______

A

Statement, Due Day

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28
Q

Utilization counts for 30% of your credit score. What are some ways to lower your utilization

A
  1. ask for a larger credit line, 2. make payments before your statement closes, 3. get another card, 4. use your debit card
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29
Q

Card that instantly deducts from your account, most similar to paying cash, can get cash back at retailers, usually also an ATM, Hard to overspend, usually get one when opening a checking account, no annual fees, no impact to credit score or report, no rewards

A

DEBIT CARD

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30
Q

This card basically gives a 30 day loan, not free money, charges high interest if not paid off, offers more purchase protection, often earn rewards

A

CREDIT CARD

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31
Q

_______ scores measure your credit risk based on your credit file

A

FICO

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32
Q

35% of the Credit Score

A

Payment History

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33
Q

30% of Credit Score

A

Utilization

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34
Q

15% of Credit Score

A

Avg Age of Accounts 15%

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35
Q

10% of the Credit Score

A

Mix of Credit, Recent Inquiries

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36
Q

How long do missed payments hurt you for

A

7 years

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37
Q

True of false: Does 1 missed payment hurt you

A

TRUE

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38
Q

What are some way to lower utilization

A

Mid-period payments, get a higher credit line

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39
Q

Hard pull vs soft pull (Recent Inquires)

A

HP: When a lender checks your credit give ssn
SP: Check your own credit report, pre approval offers, existing lenders check, don’t affect you

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40
Q

Does checking your credit score hurt you

A

NO

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41
Q

Where do you want to keep Utilization under

A

10%

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42
Q

Should you keep your oldest lines open

A

YES

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43
Q

Is it a good idea to take cash advance

A

no

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44
Q

should you slowly increase your credit limits

A

yes

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45
Q

What is a secured credit card

A

When you don’t pay your balance they deduct from deposit

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46
Q
A
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47
Q

How long do late payments last on your report

A

7 years

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48
Q

How long do bankruptcies last on your credit report

A

7 years for chapter 13, 10 years for chapter 7 and 11

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49
Q

How long do foreclosures last on you credit

A

7 years

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50
Q

How long do collections last on your report

A

7 years

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51
Q

How long does public record last on your report

A

7 years

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52
Q

How does an index fund differ from the activity managed mutual fund

A

Index fund are passively managed and match the performance of the market; Active mutual funds try to outperform the market

53
Q

True/False: When saving for retirement, one should typically invest in their tax advantaged accounts (IRA and 401k) before investing in their brokerage account

A

True (Roth IRAs and 401ks better for IRS)

54
Q

Generally, the sooner you need the money you are investing, the___________

A

less risky it should be invested

55
Q

DO not buy mutual funds with ____ fees

A

load

56
Q

When buying a mutual fund always look at the ___________

A

Fees

57
Q

What are the pros of index funds

A

Inexpensive, well diversified, liquid, Relatively tax efficient, work well with well regulated markets

58
Q

What are the cons of index funds

A

Overvalued stocks, concentrate voting rights at mutual fund companies, potential tax disadvantages, may contribute to mispricing in poorly regulated markets

59
Q

Should you try to diversify your portfolio

A

YES

60
Q

Should young people be in more stocks or more bonds

A

More stocks, they are not retiring soon

61
Q

What are the 5 different accounts that you can have

A

Checking, High Yield Savings, Brokerage, Retirement, some additional account

62
Q

What are the short term funds that you should invest in (Now - 3 years)

A

Cash, high yield savings, no losses

63
Q

What accounts should you have for intermediate funds (3-10 years).

A

Brokerage account, moderately invested, can withdraw with no penalty but taxes

64
Q

What should you have for long terms funds (retirement)

A

Roth/Trad IRA, Roth/Trad 401k, aggressively invested now, less so later

65
Q

What should your checking account do

A

Provide enough money for living, it is your workhorse

66
Q

IRA

A

7000 limit per yera, funding window jan - apr15 (fol yr.) can open anywhere, nothing to do with employer

67
Q

401K

A

23,000 Funding Jan 1 - Dec 31, must be employer

68
Q

The Priority of Saving

A
  1. 401K, 2. Rainy Day Fund, 3. Pay down debts, 4. IRA / 401k, 5. Brokerage account, 6. Kid’s college, Exotics or alternative.
69
Q

What should your focus order be

A

Savings Rate, Stock Bond Split, Portfolio Allocation, Fees, Taxes, Cash Drag

70
Q

Should you invest or should you save

A

Invest to make more money and protect against inflation

71
Q

How does a target Date fund differ from a total market index fund

A

Target date funds follow a glidepath, means they get conservative over time

72
Q

Are all target date funds inexpensive

A

no, always check fees

73
Q

To get exposed to S&P 500 one could purchase an index fund or ETF, which would be better

A

They the same just pick one

74
Q

When do you use a Backdoor Roth IRA

A

Applies when you earn too much to contribute directly to a ROTH IRA

75
Q

Which is more risky, a lending investment or an ownership investment

A

Lending investment

76
Q

Can a bondholder lose their entire investment

A

Yes, if the company goes bankrupt, but they are at the front of the line

77
Q

What are two examples of Ownership Investments

A

Real estate, stocks

78
Q

How much should you allocate to stocks and bonds in your risk profile

A

Conservative 100-(age) is the percent portfolio in stocks, Moderate 110 and aggressive 115

79
Q

What is Dow Jones

A

30 large stocks from the NYSE and NASDAQ

79
Q
A
80
Q

True of false, does the top 50 in the 500 equal the bottom 450

A

True

81
Q

What is the difference between mutual and index funds

A

Mutual funds try to beat the market, Index try to match the market. Mutual funds cost higher

82
Q

What is an ETF

A

A basket of securities that trades intra-day, more tax efficient that index funds, can trade while market is open

83
Q

Do all etfs have low fees , and have good diversification

A

No

84
Q

What are some different types of ETFS that you can have

A

Stock, bond, Marijuana

85
Q

If you are defaulted into target date fund ensure that it is a target date ___________ fund

A

INDEX

86
Q

What should your expense ratios be under when picking a 401k fund

A

(0.25%)

87
Q

Should you have multiple asset classes, what is the minimum

A

Yes, you should have at least 3 asset classes

88
Q

Should target date funds be held in brokerage accounts

A

No because they are not as tax efficient as ETFS

89
Q

Is robinhood a good way to invest

A

no, not safe, they make it appear safer than it actually is, too easy to invest

90
Q

Who is paying robinhood

A

citadel

91
Q

Who actually democratized investing

A

John C Bogle

92
Q

Why you are buying or selling an asset what should you ask

A

“Who is selling to me, and why”

93
Q

Defined Benefit Pension Plan

A

Expensive for employers, riskier for employers, employers responsible for saving enough. If employee quits job, they get nothing

94
Q

Defined contribution (401k, 403b) Pension Plans

A

Cheaper for employers, risk is on employees, Employee responsible, Easily portable

95
Q

Is auto enrollment a big deal

A

Yes, because people are lazy and don’t want to think about things

96
Q

What should you do when you get a job

A

Sign up for 401k plan and 403b plan, save enough to match employers entire matching contribution, whenever you get raise save 1/2, buy low cost index and target funds

97
Q

Where should you invest

A

Discount brokerage (Fidelity, Vanguard, Schwab)

98
Q

Where should you not invest

A

day trading platforms robin hood, Webull, entertainment only

99
Q

What are the ways that financial advisor have fees

A

Assets under management, Hourly model, Monthly model

100
Q

When should you get an financial investor

A

When your financial situation is complicated

100
Q

Should you let a financial investor do you investments

A

No, only financial advice

100
Q

What should you avoid like the plague

A

Mutual fund loads

101
Q

Advertisements for Online Trading tend to emphasize which of the following

A

That making your own trading decisions puts you in control, That trading is fun, and that it is easy to trade online

102
Q
A
103
Q

Why is social security a PAYGO system

A

Because Payroll taxes paid by current workers are used to pay current retirement benefits

104
Q

True or false: Most people in good health should claim social security retirement benefits at age 62

A

True

105
Q

True or False: Social security started with a huge unfunded liability because benefits were paid to retirees, such as IDA MAY FULLER, who did not pay that much into the system

A

True

106
Q

Psychologists find taht when people are in a good mood their decision making is

A

more spontaneous

107
Q

If you buy a company’s stock

A

you own a part of the company

108
Q

If you buy a company bond

A

you have lent money to the company

109
Q

If a company files for bankruptcy, which of the following securities is most at risk for becoming virtually worthless

A

The company’s stock

110
Q

Investments with higher risk always have higher expected returns

A

False

111
Q

Does varience equal risk

A

Yes

112
Q

Is it good to have a diversified portfolio

A

YES

113
Q

Does having a diversified portfolio of stocks protect you from broad economic wide risk

A

YES

114
Q

Is compound interest accrued interest

A

yes

115
Q

Savings accounts use compound interest

A

Yes

116
Q

Should you save for you retirement of for your childrens education first

A

retirment

117
Q

What are some ways to save more

A

Increase income, automate savings, don’t neglect the small stuff, focus on the big stuff

118
Q

Should you sign up for you 401k plan immediately when you get a job

A

Yes

119
Q

Elizabeth Warren and Amelia Warren Tyagi recommend that you budget no more than_____ of after tax income for expense that you must pay every moth

A

50%

120
Q

What should be the highest priority

A

Paying off credit card debt

121
Q

Is it easy to look up the fees for mutual funds

A

yes

122
Q

Does the fees charged by index funds vary with the types of assets that the funds invest in

A

True

123
Q

Bajamin Graham recommended holding no more than 75% of ones portfolio in stocks and no less than 25% in gold

A

false, gold should be bonds not gold

124
Q

What is part of the major credit Bureau

A

Equifax, Experian, TransUnion

125
Q
A

UGBA 135 (1 decks)

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