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AP Econ > Personal Finance Fill-In > Flashcards

Personal Finance Fill-In Flashcards

1
Q

What is the business equation? Or how do we calculate a profit, loss, or break even?

A

Revenue-expenditure=Profit

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2
Q

What does the SEC stand for?

A

Securities and Exchange Commission

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3
Q

What is a Bull Market

A

a strong growing stock market; when money is flowing into stocks driving the market up

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4
Q

what is a bear market

A

a drop of 20% in the stock market

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5
Q

a drop of 10% in the stock market

A

a correction

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6
Q

Why do companies issue stock?

A

to raise money for growth and expansion

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7
Q

why do people buy stock?

A

To earn a high rate of return for long term goals; to stay ahead of inflation

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8
Q

What is the biggest danger to your savings?

A

high inflation (It erodes your purchasing power)

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9
Q

credit cards are basically like a loan-T/F

A

True.

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10
Q

How do we calculate a percent return on an investment?

A

(New-Old)/Old times 100

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11
Q

How can we build good credit by age 22?

A

Apply for a credit card and make a small purchase per month. LOW DEBT TO INCOME RATIO!

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12
Q

Who benefits from HIGH interest rates?

A

savers; they earn or get paid the high interest

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13
Q

Who benefits from LOW interest rates?

A

borrowers; they pay back the low interest

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14
Q

What is leverage?

A

debt or borrowing; a leveraged buyout is using debt.

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15
Q

paying down debt

A

deleveraging

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16
Q

What do capital gains taxes apply to?

A

sale of a stock, home, or a small business

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17
Q

What is the best advice for saving?

A

Live within your means. Be disciplined, save early and often, prioritize your spending, and keep track of your spending. Your SPENDING is more important than your income.

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18
Q

something pledged as security for repayment of a loan, to be forfeited in the event of a default. The car is collateral for a car loan; the home for a home loan.

A

a collateral

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19
Q

a tax in which the tax rate increases as one’s income rises (average tax bracket=22%, max tax bracket=37%)

A

a progressive tax

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20
Q

a tax that proportionately hurts the poor more than the rich (ie. flat tax, social security tax, etc.)

A

regressive tax

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21
Q

family: income- spending
government tax revenue- spending
business= “business equation”
revenue-expenditure=profit

A

a BUDGET

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22
Q

a mix of investments held by a person or organization. A mix of stocks, bonds, cash, property, gold, crypto, etc.

A

a portfolio

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23
Q

getting paid interest on interest, “the 8th wonder of the world”

A

compound interest

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24
Q

rule of 70? How do we calculate it?

A

an equation that calculates how long something will double, like an investment or GDP. Divide 70 by the yearly return on an investment based on compound interest. (answer: usually in YEARS)

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25
Q

Do bonds compound?

A

NO. Fixed income.

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26
Q

When in our lives should we take the most risk?

A

when you are young, have a 10+ years until your financial goal is due; In your 20s to early 50s. (long term time horizons)

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27
Q

What is the benefit of more risk?

A

higher risk= higher potential rates of return

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28
Q

a cash payment to a share holder simply for owning the stock

A

dividend

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29
Q

to own stocks from multiple companies, across multiple industries, and even different countries

A

–> to be DIVERSIFIED

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30
Q

What 3 things are conspiring against your financial interests?

A

taxes, fees, and inflation

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31
Q

How do we calculate real interest?

A

real interest= nominal interest-inflation

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32
Q

Do you owe taxes on interest?

A

Yes; It is subject to the income tax.

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33
Q

What are payroll taxes and when are they charged?

A

social security and medicare taxes. they are charged if you are one a company’s payroll (hourly wages or salary)

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34
Q

What is a marginal tax bracket?

A

Whatevcer tax bracket you’re in is your marginal tax rate. It is the percentage taken from your next dollar earned of taxable income above a pre-defined income threshold.

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35
Q

How do you calculate taxes?

A

https://www.youtube.com/watch?v=I9HLr5lMF5U&ab_channel=JohnBouman

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36
Q

What is your nest egg?

A

your retirement savings; your life savings

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37
Q

How much does one need in retirement?

A

75% of their working income; many say $2mn in your nest egg

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38
Q

Social security was never intended to be _____?

A

Your main source of income in retirement; It’s to supplement your life savings. (true in democratic socialist northern Europe too)

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39
Q

What is the current medicare tax?

A

1.45% employer, 1.45% employee, total 2.9% (Full 2.9% if self employed/own your own business)

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40
Q

What taxes are SMALL businesses subject to?

A

income taxes, not corporate taxes

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41
Q

What federal tax bracket does the average American fall into?

A

The 22% bracket

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42
Q

What tax bracket does the average Californian fall into?

A

The 10.23% bracket

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43
Q

What is the social security tax rate?

A

6.2% for the Employer and another 6.2% for the Employee (Full 12.4% if self employed/own your own business)

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44
Q

Which investments are subject to the Federal Income Tax?

A

interest payments from bonds, CDs, money markets and savings accounts

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45
Q

What do interest paying “investments” include?

A

savings accounts, CDs, money markets, all bonds, bills, and notes except municipal bonds (munis are TAX FREE)

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46
Q

What is the capital gains tax? How do we calculate it?

A

15% if owned more than a year. Less than an year- the tax is calculated based on the income tax bracket (average- 22%)

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47
Q

How do we calculate a government budget surplus, balanced budget, or budget deficit? Who does this apply to?

A

Tax revenue- government spending (T-G)
Applies to the GOVERNMENT

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48
Q

How do we calculate spending or saving? Household budget?

A

Income - Spending

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49
Q

What are the financial time horizons terms?

A

short term: 0-5 years
medium: 5-10 years
long: +10 years

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50
Q

draw the systems that banks use.

A

https://docs.google.com/drawings/d/1zsQZXostAIqZwP27XljvjcZtl0_tMQpq89C-Z4rSgtI/edit?usp=sharing

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51
Q

a measure of how quickly you can convert something to cash

A

liquidity

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52
Q

a check that cannot be processed because the account holder has insufficient funds in their account to back the check. Banks return or bounce these checks, rather than honoring them, and banks charge the check writers fees. Credit scores go down.

A

a bounced check

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53
Q

What is the historical return of “Burying your money in the backyard?”

A

0% nominally, -2% real rate of return if 2% inflation: real= nominal - inflation; -2=0-2

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54
Q

What is the historical yearly return of a savings account?

A

2% nominal

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55
Q

What is the historical yearly return of a Certificate of Deposit (CD)?

A

4-5% nominal

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56
Q

What is the historical yearly return of Money Markets?

A

4.5-6% nominal

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57
Q

What are blue chip stocks?

A

large household named companies: all Dow companies

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58
Q

How does one calculate market capitalization? What is market cap?

A

Market cap measures the value of a company. It’s the minimum price another company would have to pay to buy another company. ***Market cap= share price times number of shares.

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59
Q

What is an equity?

A

STOCK

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60
Q

What are securities?

A

stocks and bonds

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61
Q

Do we tax revenue?

A

NO. We tax profit.

62
Q

What is the corporate tax rate?

A

21%

63
Q

Are credit cared interest rates very high or very low?

A

Very high

64
Q

What percent is the normal down deposit on a home loan?

A

20%

65
Q

What do we call a home loan?

A

mortgage

66
Q

What is the average yearly return in the stock market?

A

10%

67
Q

When are taxes due every year? (tax day)

A

April 15th

68
Q

What has been the avg inflation rate in the last 50 years?

A

2-3%

69
Q

What is the maximum tax bracket or the tax rate for the highest US earners?

A

37%

70
Q

Are interest payments you earn subject to the state income tax?

A

Yes.

71
Q

What is the DIVIDEND tax rate?

A

15% (20% if in top tax bracket)

72
Q

What are the only bonds that are tax free?

A

municipal bonds

73
Q

What is APY?

A

Average Percent Yield

74
Q

What is the historical return of a checking account?

A

0%

75
Q

What is the average american income tax?

A

22%

76
Q

What is the max income tax bracket?

A

37%

77
Q

What is the average California Income tax bracket?

A

10.23%

78
Q

total social security payroll percentage?

A

12.4%

79
Q

what is the employee social security contribution percentage?

A

6.2%

80
Q

What is the total medicare payroll contribution (employer and employee or a self employed person/owner of their own business)?

A

2.9%

81
Q

What is the employee medicare payroll contribution?

A

1.45% (the employer pays the other 1.45% for a total of 2.9%)

82
Q

Capital Gains Tax Percentage (1+year)

A

15%

83
Q

Capital Gains tax Percentage (<1 year)

A

one’s marginal tax bracket (the average American is in the 22% tax bracket)

84
Q

Dividends tax percentage

A

15%

85
Q

2023 corporate tax rate

A

21%

86
Q

2023 Average American Income

A

$59,428

87
Q

2023 Average Social Security Monthly Benefit

A

$1,705

88
Q

Percent change formula

A

New-Old/Old times 100

89
Q

What does the SEC stand for?

A

Securities and Exchange Commission

90
Q

What investments are subject to the capital gains tax?

A

Sale of Stocks, primary house, and business

91
Q

What are 3 things that work against your investing future?

A

taxes, fees, and inflation

92
Q

What does FDIC stand for and up to how much do they insure per bank?

A

Federal Deposity Insurance Corporation insuring up to $250,000

93
Q

Historically how much do savings account yield?

A

2%

94
Q

Historically how much do Certificates of Deposit (CD’s) yield?

A

4-5%

95
Q

Historically how much do Money Market’s yield?

A

4.5-6%

96
Q

how quickly an investment can be converted to cash

A

liquidity

97
Q

How are savings accounts, CDs, money markets, and bonds taxed?

A

All taxed by income tax

98
Q

Who owns corporations?

A

The shareholders

99
Q

What are the 2 stock markets in the US?

A

New York Stock Exchange (NYSE)
NASDAQ

100
Q

Which stock index measures the 30 largest US companies?

A

Dow Jones Industrial Average (DJIA)

101
Q

Which stock index measures the 30 largest US companies?

A

Dow Jones Industrial Average (DJIA)

102
Q

Which stock index measures the 500 largest US companies?

A

Standard and Poors (S&P 500)

103
Q

Which stock index measures many small cap stocks?

A

Russell 2000

104
Q

Which Stock index consists of all US based companies listed on both stock markets?

A

Total Stock Market Index

105
Q

Formula for market capitalization?

A

Share price times number of shares

106
Q

a company goes into the stock market and buys back its own stocks; share prices go up

A

stock buyback

107
Q

stock options? Define.

A

A company allows its employees to buy its stocks at a discounted price; exercising options is when you can sell the stock options.

108
Q

a company gives shares of stocks to its employees rather than cash as a bonus

A

stock bonuses

109
Q

If 2-for-1 split, the number of shares doubles but share price is cut in half.

A

–> stock split

110
Q

Large cap, household name companies. All 30 DJIA stocks

A

blue chip stocks

111
Q

What are 3 ways to make money in the Stock Market?

A
  1. Buy low, sell high
  2. Dividends
  3. Sell short (then short cover to finish)
112
Q

Cash payments to shareholders just for owning stock

A

dividends

113
Q

When are dividends paid?

A

Paid quarterly and paid out of a company’s after-tax profits

114
Q

What does DRIP stand for?

A

Dividend Reinvestment Program

115
Q

What id the Dividend Yield Formula?

A

Dollar amount of dividend divided by share price times 100 ($dividend/share price *times 100)

116
Q

market is booming (going up)

A

bull market

117
Q

market goes down at least 20%

A

bear market

118
Q

Market goes down at least 10%

A

Market Correction

119
Q

Define dollar cost averaging.

A

The practice of systematically investing equal amounts, spaced out over regular intervals, regardless of price. “Time in the market is more important than timing the market.”

120
Q

Define recession.

A

6 straight months (2 quarters) or longer of economic contraction; economy actually sinks (NEGATIVE GROWTH)

121
Q

Stocks that go up during the ups of a business cycle and down during the downturns (ex: Honda, Apple, Boeing)

A

cyclical stocks

122
Q

Goes up during the downturns and down during the upturns in the market (ex: Netflix, McDonalds, AT&T)

A

Defensive stocks/counter-cyclical stocks

123
Q

stocks that grow faster than the market average, very volatile (ex: Tesla, Amazon, AMD)

A

growth stocks

124
Q

stocks that have been oversold as their prices have been beat down. Tend to be quality companies going through a rough patch. (ex: Procter&Gamble, Johnson&Johnson, Colgate-Palmolive)

A

value stocks

125
Q

how much a company earns divided by the number of shares. Calculated 1 time per year.

A

earnings per share

126
Q

Measures the valuation of a stock

A

PRICE EARNINGS RATIO (P/E)
<14-15 undervalued
=14-15 fairly valued
>14-15 overvalued

127
Q

a company’s price to earnings ratio using the past 12 months earnings per share (TTM= trailing 12 months)

A

Trailing P/E

128
Q

Today’s share price divided by next year’s PROJECTED earnings per share

A

Forward P/E

129
Q

If a company’s forward P/E is LOWER than the company’s trailing P/E is that good?

A

Yes.

130
Q

a ratio that divides the P/E ratio by the Growth Rate of the company.
PEG ratio of 1 means a fairly valued stock
PEG less than 1: undervalued
PEG greater than 1: Overvalued
especially above 1.50

A

PEG ratio

131
Q

Measures a company’s share price VOLATILITY
Beta of 1: share price changes in line with the broader market (S&P 500)
Beta less than 1: share price is less volatile than the broader market (S&P 500)
Beta greater than 1: signal more share price volatility leading to higher highs in up market and lower lows in down market

A

beta

132
Q

debt-to-asset ratio

A

divide a company’s debt to its assets
>1: company has been financed primarily by debt.
Investors prefer less debt-asset ratios.

133
Q

What type of bond is tax free?

A

Municipal bonds

134
Q

Why do governments and corporations issue bonds?

A

Governments issue bonds to finance budget deficits.
Corporations issue bonds to finance growth and expansion.

135
Q

Synonyms for corporate bonds?

A

Corporate paper, corporate debt

136
Q

formula for bond yield

A

amount a bond pays/price one pays for the bond *times 100

137
Q

Where already issued bonds are bought/sold

A

Secondary market

138
Q

Highest rated type of bond

A

AAA bonds

139
Q

Worst rated or lowest rated type of bond

A

High Yield bonds or Junk Bonds

140
Q

Bond Prices and Yields

A

INVERSE relationship btwn bond prices and bond yields. It doesn’t matter what changes first: bond prices or bond yields.

*With demand changes first:
DEMAND is same as price of bonds but inverse from bond yields.

141
Q

debt of borrowing. “a leveraged buyout”

A

Leverage/Leveraging

142
Q

How long does it take for Treasury Bills (T-Bills) to mature or expire?

A

up to 1 year

143
Q

How long does it take for treasury notes to mature?

A

1-10 years

144
Q

How long does it take for treasury bonds to mature?

A

10+ years

145
Q

How long does on average it take for a market to bounce back after a crash?

A

3.5 years

146
Q

How do you calculate a company’s REVENUE?

A

Price *times Quantity sold

147
Q

What is the single biggest cost of running a business and how much?

A

Labor is 70-75% of the cost of running a business.

148
Q

In order, what are the most liquid to least liquid accounts at the local bank?

A
  1. Savings/checking accounts (ATM/Debit cards)
  2. Money Markets (access to your money with some limitations. NO ATM?Debit card).
  3. CDs (time deposits. 90% of people don’t break their contract early.-to get access to your money)
149
Q

Why do investors buy bonds?

A

investors to buy bonds to EARN A FIXED INCOME and FIXED INTEREST RATES

150
Q

What is the 2023 Maximum Social Security Monthly?

A

$3,627

AP Econ (3 decks)

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