General Principals and Financial Planning (15%) Flashcards
Business Cycle Stages
Trough -> Expansion -> Peak -> Contraction -> Trough
Early Expansion Stage Characteristics
Activity Rebounds; GDP Grows, Unemployment Shrinks; Credit Grows; Profits Grow; Policy still stimulative; Inventories Low, Sales Improve
Mid-Expansion Stage Characteristics
Growth Peaking; Credit Growth Strong; Profit Growth Peaks; Policy Neutral; Inventories and Sales reach Equilibrium
Late Expansion Stage Characteristics
Growth Moderating; Credit Tightens; Earnings Under Pressure; Policy Contractionary; Inventories Grow; Sales Growth Falls
Contraction Stage Characteristics
Falling Activity; Credit Dries Up; Profits decline; Policy Eases; Inventories and Sales Fall.
Real GDP
Market Value of all final goods and services produced within an economy; income of foreign workers working in the US; Profits that foreign companies earn in the US.
Excludes: Imports, Inflation, Currency, US Citizens working abroad, US companies working in foreign countries.
Formula: C + I + G + X - M. Consumer spending, plus investment by industry, plus government spending, plus exports, minus imports
Price Elasticity
Elastic = Demand greatly responds to price changes (high-end discretionary items)
Ineleastic = Demand slowly or little response to price changes (gasoline)
Substitutes vs Complements
Price of gas goes up - substitutes are firewood, electric vehicles
complements are consumed jointly - peanut butter goes on sale, demand for jelly increases.
Fiscal Policy
Congress controls taxation, and government spending.
Monetary Policy
Fed Reserve has 3 tools:
-Discount Rate: rate banks borrow from gov’t
-Reserve Requirement: % of deposits held on reserve.
-Selling treasuries - takes money out of the economy.
-Buying treasuries - puts money into the economy.
Gross Profit Margin
Gross Profit / Sales
Operating Profit Margin
Operating Income / Revenue
Return on Assets (ROA)
Net Earnings after Tax / Total Assets
Return on Equity (ROE)
Net Earnings after Tax / Equity
FDIC
$250,000 per account type.
Ch. 7 BK
Individuals and Businesses - Liquidation, takes 4-6 months, 10-years on credit report
Ch. 13 BK
Individuals Repayment; debt must be below a certain amount; takes 3-5 years; 7-years on credit report.
Ch. 11 BK
Busiensses; Reorganization; Takes 6m - 2 years; 10-years on credit report
Consumer Credit Protection Act
Right to know costs and terms of credit
Equal Credit Opportunity Act
Right to fair opportunity to obtain credit
Fair Credit Reporting Act
Right to know what’s in your credit file
Fair Credit Billing Act
Right to have billing mistakes resolved
Fair Debt Collection Practices Act
Right to be protected from collection agencies
Credit Score Category weights
Payment History (35%);
Amount Owed (30%);
Length of Credit History (15%);
New Credit (10%);
Credit mix (10%)
Credit Score Ratings
<580 - Poor
580-669 - Fair
670-739 - Good
740-799 - Very Good
800+ - Exceptional
Jumbo Mortgage Limit
$766,550
Mortgage Ratios
PITI < 28%
Consumer Debt < 20%
Total Debt <36%
Education Funding Formula
- Cost of college from today to day 1 of college, FV;
- Total cost of college (use Inflation adjusted), PV (BEG mode);
- Amt to cover costs, PV or PMT.
529 Plan Features
Non-deductible contributions;
Tax-free withdrawal if used for education or tax + 10% penalty
$18,000/year as gift - 5-year catch-up
College, K-12, room & board if 1/2 time student, $10k in student loans
Can transfer to beneficiary’s family member
No income restrictions
Counted as a parent asset
Limited investment options
Coverdell Accounts
Non-deductible contributions;
Tax-free withdrawal if used for education or tax + 10% penalty
$2,000/bene per year contribution
College, K-12, room & board if 1/2 time student
Can transfer to beneficiary’s family member
Series EE & I Bonds
Tax Deferred for Fed.; Tax Free State
Must be owned by parent (24 year’s old or more)
Max purchase of $10,000/year. Earns interest.
Use for Tuition and Fees.
Income phase out: $96,800 / $145,200
UTMA / UGMA Accounts
Earnings taxed to minor.
Contributions treated as completed gift ($18k/yr)
If donor remains guardian fund are in estate
Ends at age of majority
Counted as student’s asset
Roth IRA for college
Non-deductible contributions;
10% penalty waived for use on qualified higher education expenses
Max contribution of $7,000/yr / $8,000 if 50+
5-year holding period
Income phase out at: $161,000 single / $230,000 joint
Not counted as asset for FAFSA
Traditional IRA for college
Deductible contributions up to limit, non-deductible beyond;
10% penalty waived for use on qualified higher education expenses
Max contribution of $7,000/yr / $8,000 if 50+
Not counted as asset for FAFSA
Mutual Funds for college
Direct payments of tuition not considered gifts;
Unlimited investments
Life Insurance Cash Values for college
can provide another source of low-cost loans
ABLE Account
Tax favored savinga account that can accept contributions for an eligible individual with a disability, or blind.
Must be established before age 26;
Limited to only 1 ABLE account;
Earnes are tax-free up to ‘Qualified Disability Expenses’
Contributions not tax deductible
Contributions must be in cash or equivalents
Direct Subsidized Loans
Undergrad Only
No interest until 6-mo after graduation
Needs based
Direct Unsubsidized Loans
Undergrad, Grad, & Professional Students;
Interest starts immediately
Direct PLUS Loan
aka Parent Plus Loan
Undergrad, Grad, & Professional Students;
Interest starts immediately
Max Loan = Cost of Attendance - Other Financial Aid rec’d.
Expected Family Contribution Formula and Percentages
Student - 50% of their income + 20% of their assets
Parent - 22-47% income + 5.64% of their assets
Retirement assets and home equity are NOT counted
Grandparents, aunts, assets, etc - NOT counted
American Opportunity Tax Credit (AOTC)
$2,500/student;
40% refundable i.e. $1,000;
Max AGI: $90,000 single / $180,000 MFJ
4-years of Undergrad ONLY
Degree Seeking program
Lifetime Learning Credit (LLC)
$2,000 / return!
Not refundable;
Max AGI: $90,000 single / $180,000 MFJ
All education
Tuition and Fees only
