General Principles Flashcards
Education calculation
Step 1: Inflate PV is current cost of college solve for FV
Step 2: BEGIN MODE amount needed when child turns 18
Pmt is what you go in step 1
N is the number of years in college
I is real rate of return
Solve for PV
Step 3: how much you need to save
FV is step 2 PV
N is number of years until college
I is investment return
Solve for PV
American Opportunity Credit
Tax credit
Max of $2,500
100% of first 2,000 of expenses then 25% of next 2,000
First four years of college
Can’t be a convicted felon with drug charges
Up to 40% can be refundable credit
Punitive damages
TAXABLE
Compensatory damages
TAX FREE
Monetary Policy
Influence supply of credit
Reduce reserve/lower discount rate/ buy bonds - easy money
Increase reserve/ raise discount rate/ sell bonds- tighten money
Leading economic indicators
Manufacturing workers hours
Claims for unemployment insurance
New manufacturing orders
Contradicts for plants and equipment
New private housing units
Stock prices
Money supply
Index of consumer expectations
Coincident indicators
Move in tandem with broad economy
Number of employees on non agricultural payroll
Personal income less transfer payments
Industrial production
Lagging indicators
Average duration of unemployment
Average prime rate charged by banks
Commercial and industrial loans
Ratio of consumer installment credit outstanding to personal income
Change in consumer price index
Gross domestic product
Dollar value of all goods and services newly produced within the US. DOES NOT TAKE INTO ACCOUNT INFLATION
Durable goods
Goods that don’t wear out quickly they are cyclical
Cars, business equipment, electronic equipment, toys games
Non durable goods
Short life span
Food, fuel, make up, paper
Not be affected by recession because people need them
Economy and different industries
Right before recovery cyclical industries tend to outperform other industries like cars because consumers don’t buy high ticket items during a recession
Normal yield curve
As maturities lengthen yields increase. Extra risk due to the amount of time so extra premium
Inverted/ negative yield curve
When the federal reserve tightens economy to slow it down short term rates can rise above long term rates. Happens with inflation
Reverse mortgage
Have to be 62 years or older
No income qualifications
Proceeds are tax free
American opp credit, lifetime learning credit, coverdell and 529
YOU CANNOT combine these for same child experience see if they don’t give you an amount
NPV
NPV is zero the interest rate is the same as the required rate
NPV is positive the investment will earn more than required rate
NPV is negative the investment will earn less than required rate
Shift in demand curve
Change in income taxes, savings rate and disposable income
Think consumer
If discretionary income increases shift up and to the right
Shift in supply curve
Think producer
Technology, competition anything other than price
Anything cause production to improve will shift curve down and to the right
Demand curve perfectly elastic vs inelastic
Perfectly elastic results in a horizontal demand curve
Perfectly inelastic results in a vertical demand curve
Lifetime learning credit
Subject to AGI phaseout
Can have felony one record
For graduate and undergrad
$2k
Adv form delivery
Federal covered advisors must update their ADV forms No later than 90 days following fiscal year
Financial enmeshment
Generational
Bringing kids into financial stress
FDIC
$250k coverage
Each title gets same coverage
If two rev trusts with specified benes each covered fully
