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finance exam 1 Flashcards

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1
Q

personal financial planning

A

managing your money to achieve personal economic satisfaction

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2
Q

economics

A

the study of how wealth is created and distributed

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3
Q

how many americans are expected to live past 65

A

80%

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4
Q

what is the consumer price index? (CPI)

A

measures the average change in prices that urban consumers pay for a fixed basket of goods and services

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5
Q

what demographic group is hurt the worst by inflation

A

people with fixed incomes and lenders of money ( the amount repaid may have less buying power)

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6
Q

what is the rule of 72

A

used to find out how fast prices or your savings will double (divide 72 by annual inflation or interest rate, 72/6=12 your money will double in 12 years @ a 6% interest rate)

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7
Q

what is the cost of money

A

interest rates

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8
Q

financial opportunity cost

A

what you give up by making a purchase, the money you could’ve received by investing

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9
Q

time value of money

A

the money you earned as a result of interest (amount in savings x annual interest rate x time period)

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10
Q

compound interest

A

interest is earned on previously earned interest

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11
Q

basket of goods

A

based on a city setting

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12
Q

CPI components

A

nondiscretionary needs

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13
Q

COLA

A

cost of living assessment

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14
Q

american money problems stem from

A

poor planning, advertising and easy access

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15
Q

simple interest

A

amount you start with (principal) x annual interest rate x time period

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16
Q

inflation risk

A

things will cost more in the future than they do today

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17
Q

interest rate risk

A

may increase on your loan/mortgage etc. and change your whole budget

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18
Q

income risk

A

loose your job/income goes down

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19
Q

personal risk

A

health and safety

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20
Q

liquidity risk

A

how quickly can you get to your money in an emergency

21
Q

balance sheet

A

reports what you own and what you owe, calculates your net worth

22
Q

assets

A

cash and other tangible property with monetary value (checking account balance, retirement account)

23
Q

liabilities

A

a debt that you owe now (mortgage, credit card balance)

24
Q

net worth

A

assets - liabilities = net worth

25
Q

debt-payment ratio

A

monthly credit payments divided by take home pay (want less than 20%)

26
Q

savings ratio

A

amount saved each month / gross income

27
Q

discretionary income

A

money leftover after paying for housing, food, and other necessities

28
Q

emergency fund for how long?

A

3-6 months

29
Q

most common overspending

A

entertainment and food

30
Q

50-20-30 rule

A

50% on necessities, 30 % for wants and 20 % for savings

31
Q

education opportunity costs

A

lost wages, tuition and living costs

32
Q

FAFSA

A

Federal Application for Federal Student Aid

33
Q

which has to be repaid? loans, grants or scholarships

A

loans

34
Q

most common type of grant

A

federal pell grant

35
Q

most common loan

A

stafford loan

36
Q

when must you start repaying your loans

A

6 months after you leave school

37
Q

market timing

A

the idea that there are times to be in and out of the market (doesn’t work)

38
Q

S&P 500

A

index of 500 large US companies stocks

39
Q

Dow Jones

A

Index of 30 US large companies

40
Q

what % of market timing newsletters get it wrong

A

75%

41
Q

asset-class rotation

A

a rotation strategy that attempts to select the ideal time to move from one asset class to another (own stocks when the market is up and move to cash before it goes down) doesn’t work.

42
Q

tactical asset allocation

A

attempt to beat the market by moving from one broad asset class to another

43
Q

style rotation

A

moving from one style of investing to another at optimal times (value stocks to growth stocks, large dividend paying to small)

44
Q

sector rotation

A

outperforming by moving from one sector (financial stocks) to another (health care) depending on the economy

45
Q

why do people try to market time

A

ignorance and greed

46
Q

what is market correction

A

stock market drop of 10% or more, happens about once a year and lasts less than 2 months

47
Q

bear market

A

dropping 20%, happens every 3-5 years and lasts between 8 months and 2 years

48
Q

what is Dollar Cost Averaging (DCA)

A

spreading out your investments over time, better to invest lump sum 90% of the time

finance (1 decks)

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