final Flashcards
4 steps to assessing risk (risk management process):
1) identify risk- what can go wrong 2) Measure the risk- what is the probability of it occurring? 3) Decision - transfer risk, transfer part of risk, or accept risk 4) ongoing management of risk
what percent of compounded interest should be achieved yearly?
7-8%
when Allstate pays out after a hurricane and stocks go down, this is an example of?
stock potential
To reduce risk with an insurance company (losing benefits you paid for due to bankruptcy, etc) one should:
analyze risk, breach of contracts and AM Best info on company
putting sprinkler in a house for a fire is an example of risk ……..
reduction
not going in the car to prevent having a car accident is an example of risk ……….
avoidance
an example of risk transfer would be …………
an insurance policy
an insurance agent acts as ……….. and works with………company (s) to find the customer a policy.
underwriter; 1
An insurance broker uses ……………….. to find the customers policy
multiple companies
what is the connection with risk and premiums?
Directly related
when there’s …………….on the policy, a circumstance may not be covered; such as with a home policy, ……………, though when carried by wind, water damage may still be covered. Or with a life insurance policy………
an exclusion; flooding; suicide
A rider endorsement makes your policy …………..and the phrase is to………
stronger; attach rider
……………..don’t need a life insurance policy unless they want ………..
Single people; to leave a legacy (scholarship)
gross income x (a #, 5-10)
calculating life insurance coverage by multiplying gross income by the multiplier, called the multiple earnings approach
Adding up the person’s family loans, education, and expenses- to then deduct sources such as a Group DB, S.S death benefits, and savings, is an example of
Needs Approach- to determine amount of insurance coverage needed
Are life insurance benefits taxable?
no tax free, & possibly estate tax free as well
a non-cancelable rider adds security that
the policy will remain at the same premium
to prevent getting denied for a renewal on your policy, one should
get a renewability rider
when choosing between whole life insurance consider the cons:
higher (nearly double) premiums, part of premium put into ‘savings’ account would be better spent at higher ROR
The CSV gained from a whole life policy refers to, ………. and the interest earned is …………
cash surrender value; tax-deferred
policies being sold is a billion dollar business called
life settlements
to mediate the risk is to …………….., a term used everyday in business
mitigate the risk
2 types of healthcare are
fee for service (less popular now) and managed care (HMO)
explains to the insured what the HMO paid and what is owed by insured:…………….., usually a ratio of :……. in network and ………..out of network
explanation of benefits; 80/20; 50/50
if someones in the hospital past their limit, do they still pay their deductible?
yes for every day they are there assume they owe a deductable
the standard of care given to a person would need to be considered ……………; therefore having a good relationship with your dr is advised.
reasonable and necessary;
government health insurance programs include:
medicare, AARP (over 50 can join, covers medigap), medicaid
the risk that a company may become bankrupt is called:
credit risk
workman’s comp policies that companies take out are based on :
the nature of the industry
with ………….., an insured person is able to keep their health insurance at its regular group rate after leaving a job for …………..You will stay pay your premium. This is a federal mandate for companies with …….+ employees
COBRA; 18 months to 2 years; 50
a policy that covers 60% of your income if you become disabled in which ……….. is considered long-term and…….. is considered short-term. If you become unemployed your policy goes with you.
Disability Group Policy; 6 months + ; up to 6 months
a ……………. policy adds another ………… of your income and sits on top of your group policy. This policy is non-taxable
supplemental disability; 15%
once you are collecting on a policy, do you need to pay the premium?
no
with disability insurance there are 2 definitions of disability
Own occupation: in which you cannot perform your own job (stronger); or any occupation: in which you cannot work in ANY occupation & can get stuck in a non-preferred job
pregnancy is usually considered…………; for the first 6 months benefits are ….. income and ……… income after 6 months.
a disability; 100%; 60%
a COLA rider accounts for………; the acronym stands for……..
inflation; cost-of-living adjustment
the # 1 catalyst in increase of stock prices is ………
buying
demand a higher ror for markets such as ……………. rather than others such as GE
international and emerging
a higher Networth means a …………. tolerance for risk
higher
2 key components you need to achieve success with stocks ares:
compounding and risk mitigation
1- 8 weeks trade time describes a ……………. An example of this would be when Phelps was winning Olympics and speedo stock went up.
swing trader
a short-term trader trades …………..
6 months to 2 years
a trader covering something related to a terrorist event, or one that needs to take all risk off by 4 would be a ………..
day trader
you should always be in stocks for at least…………., a period of………
1 market cycle; 5 years
markets drop ………. faster than they go up, but generally are ………..Markets tend to drift down when times are uncertain
3xs; in ascent
the 6 parts to a broker order are:
- Type (long) 2. How many shares (#) 3. What company (name)
- What price 5. Type of limit order 6. Length of time
an IPO is an…………., which is the price a stock is first offered at
initial public offering
the price you expect to reach in order to sell or hold is called a………
price target
the ror for a stock is
profit/ investment
the 5 main investing asset categories are:
- Cash/ least risk (Cds, commercial paper) 2. Bonds and debt/ medium debt (inverse relationship with us interest rates); types: gov. (T-bond, T-bill & T-notes), state/ city, quasi government (securitized-Ginnie Mae, etc) , corporate (high yield, junk, too good to believe) 3. Stock/ equities (highest risk) 4. other (crude oil, private equities, F/X gold> sexy assets or esoteric) 5. international investments
the percentage of return given for bonds which doesn’t change and usually given …………, or every 3 months, is called
per anum; coupon rate
The YTM will fluctuate based on …………..
US interest rates
international investing is………….., but global investing is…………..
every country excluding the home country; every country including the home country
the unemployment rate isn’t accurate because people unaccounted for include :
those working part-time and discouraged workers
investments tend to grow………..% a year with……… being from dividends
10-12; 4.4%
the …….. ratio is a good indicator of the market and when it is low it can be predicted it will go back up to historical average
P/E ratio or price to earning
asset category diversification 3 main groups are …………..and the proper percentages here account for ………….. of your success with stocks. The other 8.5% is based on ………………
cash, bonds, stocks; 91.5%; stock/ industry allocation
a small company is considered……… in capital, a medium is……….., and a large is over ……………
1 billion, 1-10 bil, 10 billion
a disruptive technology company brings…………….., such as ………
break-through technology and new ideas for how things are done; Apple
………… companies have high revenue and earnings
growth
this type of company has been in business for awhile, such as………… and won’t have much more than 5% growth
value; radio shack;
the morning star style box categorizes what 6 things?
- large company 2. medium company 3. small company 4. value 5. blend 6. growth
to choose your stocks you must first choose:
industry, sector, sub-sector (IE local, regional), specific stock
a REIT stands for……….. and its a place that people put their money into and collectively into buildings and get paid as return in rents
real estate investment trust
a trust where the money is pooled and a portfolio manager uses information from analysts and such to invest that trades only once a day at NAV (net asset value). Most retirement funds use this.
mutual funds
similar to a mutual fund only it trades every day
ETF (exchange traded fund)
international stocks and bonds should allocate for ……….. of assets. The 2 different types are:
10-30%; emerging and developed
6 objectives of an investor from low risk to high are:
capital preservation, income, growth and income, growth, aggressive growth, speculation
Why would someone want a higher standard deviation?
Higher risk, higher reward
the measure of risk which compares a stock to an entire market (S&P) is called; S & P is always
beta; 1.0
the 7 risk management points for investing are:
- diversification 2. identify, measure, and manage risk (SD and Beta for entire portfolio) 3. use correlations properly 4. est. fair values for investments 5. establish a target price in which to sell 6. control loss (use stop loss GTC) 7. trailing stop less (adjusts for highest value reached)
what is the 3 legged stool? and what has it basically been replaced with?
pension, S.S, personal savings; 401K / retirement funds
always choose a 401k or 403 b when there is a/n…………
employer match
an account for retirement which is taxed when the contributions are put into it is called:………..; conversely, a similar account which is taxed at the point the money is removed from the account is considered a ………..
Roth IRA ; traditional IRA
a spouse is protected for their rights to …………., but with a/n …………. they may not be
a 401k plan; IRA
the most aggressive account in your portfolio should be your …………, and should also be the …………. account you withdraw from- before your………… which will still be taxed and taxes inevitably go up
Roth IRA > according to our speakers; last; traditional IRA
If you invest ………../ yr between ages ………….., you will become a millionaire. Also, you will make ……….. more than someone older investing from 35-65.
3600; 25-34; 100K
pros to annuities include:………….; cons include:
tax deferred, payments wont outlive recipient, good for elderly in homes (so the home cant take it all), may be good for someone struggling to save? ; inability to pass to heir, no inflation adjustment, limited investment options
2 different options for an annuity is ………
variable (low investment options + high costs) or fixed
it’s no longer, “buy low sell high”, it is now:……….
“buy high, sell higher”!
the only rule of thumb in this class, which is regarding how much one should invest into stocks is:………..
110- (age of person)
The percentage which should be invested into international stocks range from :……
5-30%
