General Principals and Financial Planning (15%)

Question 1

Business Cycle Stages

Answer 1

Trough -> Expansion -> Peak -> Contraction -> Trough

Question 2

Early Expansion Stage Characteristics

Answer 2

Activity Rebounds; GDP Grows, Unemployment Shrinks; Credit Grows; Profits Grow; Policy still stimulative; Inventories Low, Sales Improve

Question 3

Mid-Expansion Stage Characteristics

Answer 3

Growth Peaking; Credit Growth Strong; Profit Growth Peaks; Policy Neutral; Inventories and Sales reach Equilibrium

Question 4

Late Expansion Stage Characteristics

Answer 4

Growth Moderating; Credit Tightens; Earnings Under Pressure; Policy Contractionary; Inventories Grow; Sales Growth Falls

Question 5

Contraction Stage Characteristics

Answer 5

Falling Activity; Credit Dries Up; Profits decline; Policy Eases; Inventories and Sales Fall.

Question 6

Real GDP

Answer 6

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

Question 7

Price Elasticity

Answer 7

Elastic = Demand greatly responds to price changes (high-end discretionary items)
Ineleastic = Demand slowly or little response to price changes (gasoline)

Question 8

Substitutes vs Complements

Answer 8

Price of gas goes up - substitutes are firewood, electric vehicles
complements are consumed jointly - peanut butter goes on sale, demand for jelly increases.

Question 9

Fiscal Policy

Answer 9

Congress controls taxation, and government spending.

Question 10

Monetary Policy

Answer 10

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.

Question 11

Gross Profit Margin

Answer 11

Gross Profit / Sales

Question 12

Operating Profit Margin

Answer 12

Operating Income / Revenue

Question 13

Return on Assets (ROA)

Answer 13

Net Earnings after Tax / Total Assets

Question 14

Return on Equity (ROE)

Answer 14

Net Earnings after Tax / Equity

Question 15

FDIC

Answer 15

$250,000 per account type.

Question 16

Ch. 7 BK

Answer 16

Individuals and Businesses - Liquidation, takes 4-6 months, 10-years on credit report

Question 17

Ch. 13 BK

Answer 17

Individuals Repayment; debt must be below a certain amount; takes 3-5 years; 7-years on credit report.

Question 18

Ch. 11 BK

Answer 18

Busiensses; Reorganization; Takes 6m - 2 years; 10-years on credit report

Question 19

Consumer Credit Protection Act

Answer 19

Right to know costs and terms of credit

Question 20

Equal Credit Opportunity Act

Answer 20

Right to fair opportunity to obtain credit

Question 21

Fair Credit Reporting Act

Answer 21

Right to know what’s in your credit file

Question 22

Fair Credit Billing Act

Answer 22

Right to have billing mistakes resolved

Question 23

Fair Debt Collection Practices Act

Answer 23

Right to be protected from collection agencies

Question 24

Credit Score Category weights

Answer 24

Payment History (35%);
Amount Owed (30%);
Length of Credit History (15%);
New Credit (10%);
Credit mix (10%)

Question 25

Credit Score Ratings

Answer 25

<580 - Poor
580-669 - Fair
670-739 - Good
740-799 - Very Good
800+ - Exceptional

Question 26

Jumbo Mortgage Limit

Answer 26

$766,550

Question 27

Mortgage Ratios

Answer 27

PITI < 28%
Consumer Debt < 20%
Total Debt <36%

Question 28

Education Funding Formula

Answer 28

1. Cost of college from today to day 1 of college, FV;
2. Total cost of college (use Inflation adjusted), PV (BEG mode);
3. Amt to cover costs, PV or PMT.

Question 29

529 Plan Features

Answer 29

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

Question 30

Coverdell Accounts

Answer 30

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

Question 31

Series EE & I Bonds

Answer 31

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

Question 32

UTMA / UGMA Accounts

Answer 32

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

Question 33

Roth IRA for college

Answer 33

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

Question 34

Traditional IRA for college

Answer 34

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

Question 35

Mutual Funds for college

Answer 35

Direct payments of tuition not considered gifts;
Unlimited investments

Question 36

Life Insurance Cash Values for college

Answer 36

can provide another source of low-cost loans

Question 37

ABLE Account

Answer 37

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

Question 38

Direct Subsidized Loans

Answer 38

Undergrad Only
No interest until 6-mo after graduation
Needs based

Question 39

Direct Unsubsidized Loans

Answer 39

Undergrad, Grad, & Professional Students;
Interest starts immediately

Question 40

Direct PLUS Loan

Answer 40

aka Parent Plus Loan
Undergrad, Grad, & Professional Students;
Interest starts immediately
Max Loan = Cost of Attendance - Other Financial Aid rec’d.

Question 41

Expected Family Contribution Formula and Percentages

Answer 41

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

Question 42

American Opportunity Tax Credit (AOTC)

Answer 42

$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

Question 43

Lifetime Learning Credit (LLC)

Answer 43

$2,000 / return!
Not refundable;
Max AGI: $90,000 single / $180,000 MFJ
All education
Tuition and Fees only