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Fin 2114 > Final Exam: Review exam 4 > Flashcards

Final Exam: Review exam 4 Flashcards

1
Q

net worth equation?

A

value - liability

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2
Q

what are examples of estate planning?

A

will, life insurance, trusts, durable power of attorney, and joint ownership

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3
Q

unified tax credit:

A

estate and gift tax. This allows the first 13 million to be gifted tax free. There are medical and education exemptions that allow for greater $ to be gifted.

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4
Q

How much could parents pay their children without worrying about the unified tax credit?

A

34,000. You can gift more with a joint filing.

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5
Q

Generation skipping tax:

A

a tax on wealth and property transfers to a person two or more generations younger than the giver.

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6
Q

Will:

A

legal document that describes how you want your property to be transferred to others. Some states allow for a written or verbal last will but the safest option is drafted with an attorney.

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7
Q

Personal representative:

A

the person responsible for carrying out the provisions of your will.

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8
Q

probate:

A

legal process of distribution assets.

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9
Q

Codicil:

A

an attachment to a will that alters or amends a portion of the will

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10
Q

Durable power of attorney:

A

someone can act on your behalf in the event that you become mentally incapacitated.

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11
Q

Tendency by the entirety:

A

Only married couples; when the living spouse is inherited the assets of the dead

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12
Q

Joint tendency with the right to survivorship:

A

2 or more parties share an asset (like a bank account) and the assets in total pass onto the surviving partner.

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13
Q

Tendency in common:

A

2 or more parties share an asset and when one passes the others get ONLY their shares and the assets of the dead gets passed through the will.

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14
Q

Community property:

A

property acquired during a marriage assuming husband/ wife equally share property.

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15
Q

Trust:

A

Legal being that holds and manages an asset for another person (could be a person, bank, or company).

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16
Q

revokable living trust:

A

place funds into trust. can draw later if you wish

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17
Q

irrevocable living trust:

A

can’t be altered once its been established because you no longer hold the title.

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18
Q

Testamentary trust:

A

created after probate using the desires of the will

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19
Q

QTIP:

A

Gives the individual ability to direct income from the trust to the spouse.

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20
Q

As the first gift from their estate, lily and tom plan to give $20,000 to their son for a downpayment on a house.

A

20% on anything from the first 10k after threshold.

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21
Q

Why do women need to prepare more financially?

A

Financial security is harder for women than men

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22
Q

True or false: Women invest more conservatively than men

A

true

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23
Q

What are the 10 major life events?

A

1: getting started
2: marriage
3: buy a home
4: have a child
5: inheritances, bonuses, or unexpected money
6: major illness
7: caring for an elderly parent
8: retiring
9: death of a spouse
10: divorce

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24
Q

What are the 12 keys to success?

A

1: become knowledgable
2: dong procrastinate
3: life below your means
4: realize you aren’t indestructible
5: protect your stuff
6: embrace your budget
7: reinvent and upgrade your skills
8: hide your plastic
9: stocks are risky, but not as risky as not investing
10: exploit tax favored retirement funds to the fullest
11: Plan for the number of kids you want
12: stay married

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25
Q

If you happen into debt, what are the 6 skills to successfully manage debt?

A

1: spend less than you earn and budget your money
2: know the costs
3: understand the difference between good and bad debt
4: make sure you can repay what you borrow- set your own standards
5: keep your credit score strong
6: dont live with bad, expensive debt

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26
Q
A
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27
Q

Sprinkling trust:

A

distributes income according to need rather than a pre-set formula.

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28
Q

Defined-benefit plan:

A

a traditional pension plan in which you receive a promised or defined pension payout at retirement.
-lack of portability
-vested

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29
Q

Non-contributory retirement plans

A

A retirement plan in which the employer provides all the funds and the employee need not contribute.

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30
Q

contributory retirement plan:

A

A retirement plan in which the employee possibly with the help of the employer, provides the funds for the plan.

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31
Q

Unfunded pension plan

A

a pension fund in which the benefits are paid out of current earnings on a pay-as-you-go basis.

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32
Q

Cash-balance plans:

A

workers are credited with a percentage of their pay plus a predetermined rate of interest.

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33
Q

401(k) plan:

A

a tax-deferred retirement savings plan in which employees of private corporations contribute a portion of their wages up to a maximum amount set by law

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34
Q

What are the two types of retirement payout?

A

Single life annuity and annuity for life/ a “certain period”

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35
Q

Single life annuity:

A

you receive a set monthly payment for the rest of your life

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36
Q

Advantages of mutual funds:

A

diversification, professional management, minimal transaction costs, liquidity, flexibility, service, and avoidance of bad brokers

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37
Q

Investment company:

A

a firm that invests the pooled money of a number of investors in return for a fee.

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38
Q

open-end mutual fund:

A

a mutual fund that has the ability to issue as many shares as investors want. The value of all the investments that the fund holds determines how much each share in the mutual fund is worth. They account for over 95% of all the money put into the various investment companies.

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39
Q

net asset value:

A

the dollar value of a share in a mutual fund
NAV= ((TV-L)/(TOTAL SHARES))

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40
Q

Closed-end mutual fund

A

a mutual fund that can’t issue new shares. these funds raise money only once by issuing a fixed number of shares, and after that, the shares can be traded between investors.

41
Q

ETFs (Exchange traded funds):

A

A hybrid of a mutual fund and an individually traded stock or bond that trades on an exchange just as individual securities do.

42
Q

Unit investment trust:

A

a fixed pool of securities, generally municipal binds, in which each share represents a proportionate ownership interest in that pool

43
Q

REIT (Real estate investment trust):

A

An investment vehicle similar to a mutual fund that specializes in real estate investments, such as shopping centers or rental property, that make real estate loans.

44
Q

Hedge funds:

A

an investment fund that is private, largely unregulated, and very risky and that charges very high fees and allows only wealthy investors to invest.

45
Q

Load

A

a sales commission charged on a mutual fund

46
Q

load funds:

A

a mutual fund on which a load or sales commission is charged.

47
Q

Back end load:

A

a commission that is charged only when the investor liquidates his or her holdings.

48
Q

money market mutual funds

A

a mutual fund that invests in treasury bills, CDs, cash, that generally mature in less than 30 days

49
Q

Tax-exempt money market mutual fund

A

a money market mutual fund that invests only in very short term municipal debt

50
Q

government securities money market mutual fund

A

a money market mutual fund that invests solely in us government securities in order to avoid any risk whatsoever.

51
Q

stock funds

A

the most popular; a fund that invests primarily in common stock

52
Q

aggressive growth fund

A

tries to maximize capital appreciation while ignoring income. Funds tend to go after stocks whose prices could rise dramatically, even though these stocks tend to pay very small dividends.

53
Q

small company growth funds

A

invest in undiscovered companies with unlimited future growth

54
Q

growth funds

A

pay more attention to strong firms that pay dividends

55
Q

growth and income funds

A

invest in a portfolio that will

56
Q

Mutual fund prospectus:

A

a description of the mutual fund including the fund’s objectives and risks, historical performance, expenses, and more info

57
Q

what is the expense ratio?

A

expenses / assets

58
Q

12b-1 fee:

A

an annual fee, generally ranging from 0.25 to 0.75% of a fund’s assets that the mutual fund charges its shareholders for marketing costs.

59
Q

Why invest in bonds?

A

reduce risk through diversification, produce a steady income, the most safe kind of investment if its held to maturity.

60
Q

Par value:

A

the face value of a bond or the amount that’s returned to the bondholder at maturity (the bond’s denomination).

61
Q

indenture

A

a legal agreement between the firm issuing a bond and the bond trustee, who represents the bondholders

62
Q

deferred call

A

a bond provision stating that the bond can’t be called until a set number of years have passed since it was issued

63
Q

series EE bonds

A

fixed interest rates and low denominations

64
Q

I bonds

A

accural type bond, meaning the interest is added to the value of the bond and paid when the bond is cashed in. return is a combination of a fixed rate of return and a semiannual inflation rate.

65
Q

current yield (definition and formula)

A

annual interest rate/ market price of the bond. The ratio of the annual interest payment to the bond’s market place.

66
Q

yield to maturity:

A

the true yield or return that the bondholder receives if a bond is held to maturity. it is the measure of expected return for a bond

67
Q

why invest in stocks?

A

over time, they outperform all other investments, reduce risk through diversification, liquid, the growth in your investment

68
Q

limited liability

A

in case of bankruptcy, it is limited to the amount of your investment.

69
Q

What is stock splits vs split stock?

A

Stock splits: to keep the price of the stock down, encouraging more people to buy them, the company splits the stock.
Split stock: increasing the number of stock shares outstanding by replacing the existing shares.

70
Q

earnings per share

A

net income-preferred stock dividends/ number of shares of common stock outstanding.

71
Q

derivative securities

A

securities who’s value is derived from the value of other assets

72
Q

lending investments

A

savings accounts and bonds which are debt instruments issued by corporations and by the government, are examples.

73
Q

ownership investments

A

preferred stocks and common stocks, which represent an ownership position in a corporation, and income-producing real estate are examples of ownership investments. (real estate)

74
Q

round lots:

A

one way of trading; a group of 100 shares of stock

75
Q

odd lot

A

orders involving between 1-99 shares of stock

76
Q

named perils:

A

type of insurance that covers a specific set of named perils. if it isn’t named, it isn’t covered.

77
Q

80% rule defines…

A

a homeowner’s insurance rule that says the home must be insured for at least 80% of its replacement cost.

78
Q

no-fault insurance

A

a type of auto insurance in which your company protects you in the case of an accident, regardless to who is at fault

79
Q

Adjustable-rate mortgage:

A

a mortgage in which the interest rate charged fluctuates with the level of current interest rates. ARM= index rate + margin

80
Q

consumer loans:

A

a loan involving a formal contract that details exactly how much you’re borrowing and when/ how you are going to pay it back

81
Q

consumer credit:

A

credit purchases for personal needs other than for home mortgages; anything from auto loan to credit card debt

82
Q

cash advance fee

A

a charge for making a cash advance, paid as either a fixed amount or a percentage of the cash advance.

83
Q

what are the five C’s of credit?

A

Character, capacity, capital, collateral, conditions

84
Q

deposit-type financial institutions:

A

provide traditional checking and savings accounts

85
Q

Non-deposit type financial institutions

A

financial institutions such as mutual funds and stockbrokerage firms that don’t provide checking and savings accounts

86
Q

asset management accounts:

A

comprehensive financial service package offered by brokerage firms; includes checking accounts, credit/ debit cards, loans, and automatic payments. Automatically coordinate the management of money, but it comes uninsured and with high fees/ commissions

87
Q

after tax return:

A

the actual return you earn on taxable investments once taxes have been paid. After-tax return= taxable return*(1-marginal tax rate) + nontaxable return

88
Q

personal exemptions

A

an IRS approved deduction before you compute your taxes.

89
Q

standard deductions

A

a set deduction allowed by the IRS, regardless of what a taxpayer’s expenses actually were

90
Q

what are some common deductibles for taxes?

A

medical and dental expenses, tax expenses, home mortgage and investment interest payments, gifts to charity, casualty and theft loss.

91
Q

what’s an example of a tax-exempt income?

A

bonds issued by a state or city you can collect the interest on and not pay taxes for

92
Q

compound interest

A

effect of earning interest on interest, resulting from the reinvestment of interest paid on an investment’s principle.

93
Q

future value interest factor

A

the value used as the multiplier to calculate an amounts future value (there are tables to find this value

94
Q

Rule of 72:

A

helpful investment rule that states you can determine how many years it will take for a sum to double by dividing the annual growth rate into 72.

95
Q

net worth:

A

also known as equity; the measure of the level of your wealth, which is determined by subtracting the level of your debt or borrowing from the value of your assets.

96
Q

what are the five basic steps of personal financial planning?

A

evaluate your financial health, determine your financial goals, develop a plan of action, implement your plan, review your progress and revise!

97
Q

three horizons of a financial lifetime?

A

prenatal (1-18), family formulation (18-54), accumulation of wealth (55-64), retirement (65–).

98
Q

10 principles of personal finance:

A

1: best protection is knowledge
2: nothing happens without a plan
3: the time value of money
4: taxes affect personal finance decisions
5: stuff happens, the importance of liquidity
6: waste not, want not- smart spending matters
7: protect yourself against major catastrophes
8: risk and return go hand in hand
9: mind games, your financial personality, and your money
10: just do it

Fin 2114 (1 decks)

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