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Personal finance > midterm > Flashcards

midterm Flashcards

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1
Q

outline of personal finance

A
  1. Assessment
  2. goal setting
  3. Planning
  4. execute
  5. Monitor and reassess
  6. summary
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2
Q

Net worth =

A

assets - liabilities

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3
Q

Keep non-home debt less than what percent of home income?

A

8%

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4
Q

what is the total value of all items owned by an individual?

A

wealth

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5
Q

what is the organizational planning model?

A

financial plans -> financial actions -> financial results

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6
Q

what is the six step financial planning process?

A
  1. Define financial goals
  2. develop financial plans and strategies
  3. implement financial plans and strategies
  4. periodically develop and implement budgets to monitor and control progress against goals
  5. use financial statements to evaluate results of plans and budgets, taking corrective actions as required
  6. redefine goals and revise plans and strategies as personal circumstances change
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7
Q

what is the amount of satisfaction derived from purchases versus costs?

A

utility

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8
Q

what are the major participants in the us economic system?

A
  • government
  • business
  • consumers
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9
Q

what is the function of the government in the economic system?

A

-taxation and regulation

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10
Q

what does the fiscal policy do?

A
  • controls levels of taxation

* set levels of government spending

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11
Q

what does monetary policy do?

A
  • controls money supply

* Used to stimulate of contract economic growth

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12
Q

characteristics of the economic cycles

A
  • stags related to employment and production levels

* growth is measured by changes in GDP

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13
Q

characteristics of inflation

A
  • measured by changes in CPI
  • affects purchasing power and interest rates
  • affects financial plans and goals
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14
Q

what determines your personal income?

A
  • demographic income
  • education
  • where you live
  • career
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15
Q

what is the balance sheet equation

A

assets = liabilities + net worth

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16
Q

what is the income statement

A

a measure of financial performance over a given time period

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17
Q

what is the solvency ratio for?

A
  • Net worth at a given point in time

* Indicates potential to withstand financial problems

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18
Q

what is the solvency ratio?

A

Net worth/total assets

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19
Q

what is the liquidity ration for?

A

measures the ability to pay current debts in event of income loss

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20
Q

what is the liquidity ratio?

A

total liquid assets/total current debts

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21
Q

what is the savings ration for?

A

• shows percentage of after-tax income saved during a period of time

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22
Q

what is the savings ratio for?

A

cash surplus/income after taxes

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23
Q

what is the debt service ration for?

A

allows you you make sure you can comfortably meet your debt obligations

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24
Q

what is the debt service ratio?

A

total monthly loan payments/monthly gross (before tax) income

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25
Q

What are 5 ways to use budgets?

A
  • monitor and control finances
  • allocate income to reach goals
  • implement disciplined spending
  • reduce needless spending
  • achieve long-term financial goals
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26
Q

What is the rule of 72?

A

Number of years to double money= 72/annual compound interest rate

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27
Q

What is the future value formula?

A

FV= amount invested X future value factor

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28
Q

What is cash management?

A

The routine day-to-day use of liquid assets

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29
Q

What are examples of liquid assets?

A
  • cash
  • checking accounts
  • savings accounts
  • money market deposit accounts
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30
Q

What are depository financial institutions?

A
  • commercial banks
  • savings & loan associations
  • savings banks
  • credit unions
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31
Q

What are non-depository financial institutions?

A
  • stock brokerage firms

* mutual funds

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32
Q

Characteristics of commercial banks

A
  • largest type of traditional financial institution
  • offer full array of financial services
  • only financial institution to offer non-interest-paying
33
Q

Characteristics of S&Ls

A
  • not as prominent as they once were
  • suffered financial loss due to a scandal in the 1980’s
  • offer services similar to commercial banks
  • may pay slightly more on savings deposits
  • channel depositors’ savings into mortgage loans
34
Q

Characteristics of savings banks

A
  • located primarily in New England
  • offer interest-paying checking accounts & rates similar to the S&Ls
  • most are mutual associations
35
Q

Characteristics of credit unions

A

•provide financial products and services to people with a common tie
•non-profit, member owned financial cooperative
-interest rates higher than other institutions

36
Q

Characteristics of stock brokerage firms

A
  • May offer MMMF’s
  • margin loans
  • credit card services
37
Q

Characteristics of mutual funds

A
  • investment companies

* owned by investors/members

38
Q

The federal deposit insurance corporation insures what

A
  • Accounts at banks
  • savings banks
  • S&Ls
39
Q

The national credit union administration insures what

A

Credit unions

40
Q

What is a characteristic of a checking account?

A

It demands a deposit.

If sufficient funds, banks must pay amount of check or ATM withdrawal

41
Q

Characteristics of savings accounts

A

It’s a time deposit. Money is expected to remain on deposit for a longer time period

42
Q

What are interest bearing checking accounts?

A
  • include NOW, share draft, and money market deposit accounts
  • offered by banks, savings banks, S&Ls, and credit unions
43
Q

What are interest paying checking accounts?

A
  • NOW accounts
  • money market deposit accounts
  • money market mutual funds
44
Q

What are NOW accounts?

A

Interest paid, may have minimum balance

45
Q

What are money market deposit accounts?

A

Convenient, safe, federally insured

46
Q

What are money market mutual funds?

A

Pools investors funds to purchase high-return, short-term, marketable securities

47
Q

What are asset management accounts?

A

Comprehensive deposits account combining checking, investing, and borrowing activities offered by brokerage firms and mutual funds

48
Q

What bank service provides investment and estate planning advice?

A

Trust services

49
Q

What are cashier’s check?

A

Drawn on the bank

50
Q

What are travelers check?

A

Used for making purchases worldwide

51
Q

What are certified checks?

A

Drawn on account but guaranteed by bank

52
Q

Characteristics of certificate of deposit (CD)

A
  • funds remain on account for a given time period

* early withdrawals incur on interest penalty

53
Q

Characteristics of U.S. Treasury bills

A
  • debt securities issued by U.S. Treasury
  • sold at discount ; $100 minimum
  • mature in 1 year or less
54
Q

Characteristics of EE bonds

A
  • purchased by payroll deduction historically
  • also sold at banks, S&Ls, credit unions
  • issued by U.S. treasury
  • fixed rate of interest, adjusted at 6 month interval
  • purchased at discount
  • accrual type-security with interest pis when cashed in
  • new bonds must be held 1 year
  • income taxes at be avoided in needed for educational purposes
55
Q

Characteristics of I saving bonds

A
  • sold at face value

* combine fixed rate with an inflation rate component

56
Q

What should be done when buying an automobile?

A
  1. Research your purchase thoroughly
  2. Select based in needs and preferences
  3. Negotiate price
  4. Maintain & repair after purchase
57
Q

What are two car leasing processes?

A

Closed-end lease and open-end lease

58
Q

What is a closed-end lease?

A
  • “walk away” from car when lease is over

* most popular

59
Q

What is a open-end lease?

A
  • payment based on car’s residual value

* upon return, pay difference if car’s worth is less than estimated

60
Q

What are leading payment calculations based on?

A
  • capitalized cost (price) of the car
  • forecasted residual value at end of lease
  • many factor (financing rate) on lease
  • lease term
61
Q

What are 5 dumb car leasing mistakes?

A
  • paying too much money upfront
  • forgetting gap insurance
  • underestimating your mile driven
  • not maintaining the car
  • leasing for too long
62
Q

Characteristics of cooperative apartments

A
  • retracts own shares in nonprofit corporations that owns building
  • assessed fees based in space occupied
63
Q

What are some benefits of owning a home?

A
  • personal satisfaction
  • tax shelter
  • inflation hedge
64
Q

What are some of the costs of home ownership?

A
  • down payment
  • points and closing costs
  • mortgage payments
  • property taxes and insurance
  • maintenance and operating expenses
65
Q

What amount is usually the down payment on a house?

A

5%-20% of purchase price

66
Q

If the down payment is less than 20% . . .

A

Lender may require a private mortgage insurance (pmi), which protects lender of buyers defaults

67
Q

What are points?

A
  • premium paid for obtaining lower mortgage rate
  • one time fee charged by lender
  • from 0-3 points assessed on mortgage
  • essentially, prepaid interests
68
Q

What can be some closing costs?

A
  • loan application fee, organization fees
  • points
  • title search, insurance
  • attorney fees
  • appraisal fees
69
Q

The mortgage payment is divided into what three areas?

A
  • principal
  • interest
  • taxes
  • insurance
70
Q

What is the affordability ratio for monthly mortgage payment?

A

25-30% of monthly gross income

71
Q

What is the total of all monthly installment loan payments?

A

33-38% of monthly gross income

72
Q

Most realtor agents belong to what?

A

Multiple listing service (MLS)

73
Q

What are types of listing agreements?

A
  1. Exclusive right to sell
  2. Exclusive agency agreement
  3. Open agreement
  4. Net listing agreement
74
Q

What is an exclusive right to sell agreement?

A

The agent receives a commission no matter who sells the property

75
Q

What is an exclusive agency agreement?

A

The agent has an exclusive right to market the home

76
Q

What are sources of mortgage loans?

A
  • commercial banks
  • thrifts institutions
  • mortgage banks
  • mortgage brokers
77
Q

What are different types of mortgage loans?

A
  • fixed rate mortgage
  • adjustable rate mortgage
  • FHA mortgage
  • VA loan
78
Q

What is FHA mortgage?

A
  • payments insured by federal housing administration

* lower down payment, interest rates, closing

79
Q

What is a VA loan?

A

•payments guaranteed by Veterans Administration

Personal finance (2 decks)

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