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CFP Prep - Nipa > General > Flashcards

General Flashcards

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CFP® flashcards
1
Q

Who issues new issues to the public

A

New issues are issued by SEC

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2
Q

What are the two financial markets

A

Money Market and Capital Markets

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3
Q

Money Markets

A

concentrate on short-term debt instruments

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4
Q

Money Markets

A

concentrate on short-term debt instruments

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5
Q

Secondary markets

A

Secondary market is where previously issued securities trade among investors.

The key differentiator is that the issuing company is NOT directly involved.

Secondary markets and issues are regulated by the Securities Act of 1934.

Secondary markets take two forms:
Organized exchange (i.e., New York Stock Exchange)
Over the Counter (OTC) market (i.e., NASDAQ)

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6
Q

Primary Market

A

Primary market is where new securities are issued and sold to the public for the first time
Securities are registered with the SEC and sold to clients through the initial public offering (IPO) process.
Issuing firm is the recipient of proceeds.
Primary markets and issues are regulated by the Securities Act of 1933.

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7
Q

Sec Act of 1933

A

registration of initial public offerings

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8
Q

Glass Steagall Act of 1933

A

prohibition of financial institution consolidation and offering any combination of traditional commercial banking, investment banking and insurance

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9
Q

Chapter 7 Bankruptcy - Primary purpose, who can file and eligibility requirements

A

Liquidation

Individuals and businesses

Income must be below a certain amount

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10
Q

Chpt 7 Bankruptcy - what must be repaid

A

Most debts are discharged after 115 days from the date of filing for Chapter 7, but certain obligations must still be repaid:

child support,
alimony,
income taxes less than three years past due,
student loans, and
secured debt.

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11
Q

Chapter 7 Bankruptcy - Unsecured debt, secure debt and impact to foreclosures

A

Unsecured Debt - Can be eliminated

Secure debt - nonexempt assets are sold to pay off secured debt

CANNOT stop foreclosure (but can delay it)

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12
Q

Chapt 7 Bankrupcy - timeline

A

takes 4-6 months

Most debts are discharged after 115 days from the date of filing for Chapter 7

stays on credit report for 10 yrs

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13
Q

Chapter 13 Bankruptcy - Primary purpose, who can file and eligibility requirements

A

Repayment in full over a period of time - a debtor will pay more every month to make payments on their overdue debt along with their current monthly payments.

individuals

debt must be below a certain amount - $419,275 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans.

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14
Q

Chapter 13 Bankruptcy - Unsecured debt, secure debt and impact to foreclosures

A

Unsecured Debt - paid back over time through repayment plan

Secure Debt - paid back over time through the repayment plan

CAN Stop foreclosures

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15
Q

Chapt 13 Bankrupcy - timeline

A

takes 3-5 years

stays on credit report for 7 years

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16
Q

Chapter 11

A

Purpose: Reorganization

business but also accommodates those who exceed Chapter 13 debt limitations or lack regular income.

No minimum or max debt or income requirements

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17
Q

Chapter 11 - Debt and foreclosures

A

Unsecured debt - reorganized and paid back over time

secure debt - restructured and paid back over time

CAN stop forclosures

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18
Q

Chapter 11 - timeline

A

takes 6 months - 2 years

stays on credit report for 10 yrs

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19
Q

Right to know costs and terms of credit

A

Consumer credit protection act

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20
Q

Right to fair opportunity to obtain credit

A

Equal Credit Opportunity Act

Borrower must receive response from creditor in 30 says with approval or denial; if denied, creditor must give reason or explain your right to an explanation

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21
Q

Right to know what’s in your credit file

A

fair credit reporting act

If you are denied credit, the Fair Credit Reporting Act entitles you to a fair and accurate credit report.

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22
Q

right to have billing mistakes resolved

A

fair credit billing act

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23
Q

right to be protected from collection agencies

A

Fair debt collection practices act

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24
Q

lenders to disclose the true cost of consumer credit, explaining all charges, terms and conditions involved.

A

Truth in Lending Act, 1968

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25
Q

Current Ratio

A

current asset / current liabilities

You want your current ratio to increase. It means your current assets are increasing and your current liabilities are decreasing

26
Q

Values on Personal Balance Sheet

A

items on personal balance sheet are listed at FMV

27
Q

What is an Asset and that are the 3 types?

A

An asset is anything owned by a business or an individual that has market value.

There are three main types of assets:

Cash and Cash Equivalents.
Investment Assets.
Personal Use Assets.

28
Q

Are mortage refinance proceeds considered income?

A

When you refinance you are essentially taking out a new loan and using the proceeds of that loan to pay off the existing loan. Loan proceeds received are not considered income.

29
Q

What are Investment Assets?

A

Investment assets are usually purchased for the purpose of providing income or growth over time.

Investment assets include common stocks, bonds, mutual funds, exchange traded funds, cash value of life insurance, and deferred annuities.

30
Q

Quick Ratio

A

It’s a liquidity ratio

current assets - inventories
______________________________
current liabilites

31
Q

Current Ratio

A

Current Assets
_________________
Current Liabilities

32
Q

Debt Ratio

A

Total Assets

33
Q

Working Capital

A

Current Assets - Current Liabilities

34
Q

Gross Profit Margin

A

Sales

35
Q

Debt to Equity

A

Equity

36
Q

Times Interest Earned

A

EBIT / Interest Expense

37
Q

Times Interest Earned

A

EBIT / Interest Expense

38
Q

Front End Ratio

A

aka Mortgage Debt Service Ratio or Housing Cost Ratio

For mortgage approvals

(Principle + Interest + Taxes + Insurance) / Gross Income

(Principle + Interest + Taxes + Insurance) = PITI
Pass <= 28% is good
If Greater than 28%, bad

39
Q

Restrictive/Contractionary (Tight) monetary policy

A

Slows pace of growth.
Increases the discount rate which increases the cost of borrowing.
Increases reserve requirements.
Sells securities to the market.

40
Q

Accommodative/Expansionary (Easy) monetary policy

A

Increases pace of growth.
Decreases the discount rate which lowers the cost of borrowing.
Decreases the reserve requirements, increasing the amount available to be lent out.
Buys securities from the market which puts money back into circulation.

41
Q

Monetary Policy

A

Fed Controls Money = Controlled by the Federal Reserve Bank (the Fed)

Controls the money supply (Buy/Sell Treasure Securities),
influences lending rates (Discount Rates),
may slow down or stimulate the economy (controlling reserve reqs)

42
Q

Fiscal policy

A

Congress controls FisCal Policy
Refers to the taxation, expenditures, and debt management by Congress

43
Q

FDIC

A

Per Institution, Per Ownership Type AND Per person

First split by institution, then split/bucket by ownership type and than bucket by per person

Split the joint A/C Amount

44
Q

Credit score

A

tells lenders about a person’s creditworthiness (i.e., how likely they are to pay back a loan based on credit history)

45
Q

FICO® Score Categories

A

Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
New credit (10%)
Credit mix (10%)

46
Q

Amounts owned accounts for what % of an individual’s credit score?

A

30%

Credit utilization = amount credit used from amount of credit available. The more credit it utilized the more overall credit score will be lowered

47
Q

How many years will it take for anything falls of the credit report?

A

7 Years

48
Q

FICO Score - Poor Rating

A

< 580

Well below Avg.
Demonstrates to lenders that you are a risky borrower

49
Q

FICO Score - Fair

A

580-699

Below Avg.
Many lenders will approve loans

50
Q

FICO Score - Good

A

670 - 739

Near or slightly above avg.
Most lenders consider this a good score

51
Q

FICO Score - Very Good

A

740 - 799

Above Avg.
Demonstrates to lenders you’re very dependable borrower

52
Q

FICO Score - Exceptional

A

800+

well above avg.
exceptional borrower

53
Q

Fixed Rate vs. Variable Rates for Mortgages

A

Fixed if interest rates are low and/or keeping the home for a long time

Variable if interest rates are high and/or not keeping the home for long

54
Q

Mortgage Origination Points

A

borrower can pay origination points to lower their rate or improve terms otherwise

points are % of the amount borrowed and can be added to the mortgage

55
Q

What is PMI and when is it required?

A

PMI = Private Mortgage Interest

Required if down payment is less than 20% of the value of the home

56
Q

Mortgage/debt $ amount for Jumbo loan

A

Mortgage below $766,500 = Conventional loan

Mortgage above $766,500 = jumbo loan

57
Q

Balloon Mortage

A

mortgage in which a initial payments are lower and payments get larger as the time goes on.

best if for shot-term/temporary housing scenarios

large portion of the borrowed principal is repaid in a single payment at the end of the loan period

58
Q

Gov. Mortgage Programs

A

Federal Housing Administration

Veterans Administration

United States Department of Agriculture

59
Q

Back-end Ratio

A

Total Debt Ratio or Debt Repayment Ratio

Formula = (PITI + Monthly Consumer Debt) ÷ Monthly Household Gross Income

PASS = ≤ 36%

60
Q

Consumer Debt Ratio

A

Formula = Monthly Consumer Debt (Non-Housing) ÷ Monthly Net Household Income

PASS = ≤ 20%

Note: Consumer Debts (non-housing) include:
Auto loans
Student Loans
Credit Cards
Unsecured Debts

61
Q

20% 28% 36%

A

20% = Consumer Debt Ratio pass rate

28% = House Cost Ration /Front End Ratio pass rate

36% = Total Debt Ratio or Debt Repayment Ratio (Back-end ratio) pass rate

CFP Prep - Nipa (9 decks)

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