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Personal Finance > Personal Finance Test 1 > Flashcards

Personal Finance Test 1 Flashcards

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1
Q

An agreement between you and lender that allows you to borrow money to purchase or refinance a home and gives lender right to take your property if you fail to repay money you’ve borrowed.

A

MORTGAGE

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2
Q

Money paid regularly at particular rate for use of money lent or for delaying repayment of debt.

A

LOAN INTEREST

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3
Q

Sum of money lent or invested on which interest is paid. The portion of a payment that goes toward product (house, car, property, etc.)

A

LOAN PRINCIPAL

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4
Q

A right to keep possession of property belonging to another person until debt owed by that person is discharged/paid in full.

A

LIEN

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5
Q

Processing fees you pay to your lender when you close on your loan (usually 3-6% of your total loan balance).

A

LOAN CLOSING COST

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6
Q

Part of your monthly loan payment is deposited to cover some of the costs associated w home ownership.

A

LOAN ESCROW

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7
Q

Fee that some lenders charge if you pay off all or part of your mortgage early.

A

PRE-PAYMENT/PRE-PAYMENT PENALTY

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8
Q

The grantee/loan institution may subsidize loan (such as FHA loan) so that interest rate is lowered (ex. lowering from 5% to 3%) thereby lowering mortgage payment.

A

SUBSIDIZED LOANS

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9
Q

The (FHA) Federal Housing Administration is part of HUD (US Housing & Urban Development) - the federal government insures/backs loan reducing risk of default, so your lender/bank can offer you better deal.

A

FHA LOAN

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10
Q

MAKING A PLAN

A

Problem 1) you need more money
Problem 2) you need to reduce your debt
Problem 3) you need to change how you spend

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11
Q

Financial issues that can affect individual

A

PERSONAL FINANCE

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12
Q

Process of planning every aspect of your personal finances (detailed road map - spending/financing)

A

PERSONAL FINANCIAL PLANNING

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13
Q

1) career decisions, 2) look for growing jobs/salaries, 3) state/local taxes 4) credit scores (impacts ability to borrow money

A

STEPS TO PERSONAL FINANCIAL PLANNING

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14
Q

Apartment/electricity/car/phone/gas/food

A

EXPENSES

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15
Q

Cost of pursuing one option instead of another expressed as value of activity you gave up

A

OPPORTUNITY COST

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16
Q

Anything owned, such as cars, motorcycles, homes

A

ASSETS

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17
Q

What we owe; debt

A

LIABILITIES

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18
Q

Assets minus liabilities = _____

A

NET WORTH

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19
Q

Act of resisting impulse to take immediately available reward in hope of obtaining more-valued reward in future.

A

DELAYED GRATIFICATION

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20
Q

What do you want? Car/house/own business goal must be achievable

A

STEP 1: ESTABLISH YOUR FINANCIAL GOALS

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21
Q

Within next year goals

A

SHORT TERM GOALS

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22
Q

Within 1-5 years goals

A

INTERMEDIATE-TERM GOALS

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23
Q

More than 5 years goals

A

LONG-TERM GOALS

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24
Q

What are in Step 1 + definitions

A

1) Short-term goals - 1 year
2) Intermediate goals - 1-5 years
3) Long-term goals - 5+

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25
Q

STEP 2: EVALUATE YOUR CURRENT FINANCIAL POSITION + what are in here

A

1) FORECAST - projection about what will happen in future
2) EXPENSES - anything on which we spend money
3) FIXED EXPENSE - expenses with remain same from period to period
4) VARIABLE EXPENSE - expenses that may change from one period to the next

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26
Q

STEP 3: Identify and evaluate options for accomplishing your goals

A

There are multiple roads that reach the same destination. The same is true for financial goals (ex. roommate, work extra hours, etc.)

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27
Q

Step 4: Pick the best plan + what it includes

A

RISK - possibility of financial loss

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28
Q

STEP 5: Periodically Evaluate Plan

A

make sure you’re on the right track.

29
Q

STEP 6: Revise Financial Plan as Necessary

A

make changes if necessary.

30
Q

STEP BY STEPS:

A

1) Establish your financial goals
2) Evaluate your current financial position
3) Identify and evaluate options for accomplishing your goals
4) Pick the best plan
5) Evaluate plans periodically
6) Revise financial plans if necessary.

31
Q

Proven step-by-step procedure to lead to correct solution (mathematical formula)

A

ALGORITHM

32
Q

Mental strategy that may or may not work in certain situations. Unlike algorithms, heuristics do not always guarantee the correct solution. However, this strategy allows people to simplify complex problems.

A

HEURISTICS

33
Q

Trying a number of different solutions and ruling out those that don’t.

A

TRIAL AND ERROR

34
Q

When you realize you can solve problem based on something similar you’ve dealt with in the past.

A

INSIGHT

35
Q

People make assumptions about constraints and obstacles that prevent solutions.

A

ASSUMPTIONS

36
Q

Tendency to view problems in customary manner (prevents people from seeing all diff options)

A

FUNCTIONAL FIXEDNESS

37
Q

It is important to distinguish info that is relevant to the issue vs irrelevant data. When a problem is complex, it is easy to focus on misleading info.

A

IRRELEVANT/MISLEADING INFO

38
Q

Tendency to only use solutions that have worked in past vs. alternate ideas.

A

MENTAL SET

39
Q

9-Digit number printed in bottom left corner of each check (first set at bottom) - bank’s specific number

A

ROUTING NUMBER

40
Q

(10-12 digits) and second set on bottom

A

ACCOUNT NUMBER

41
Q

Lower right and upper right corner

A

CHECK NUMBER

42
Q

Check that has been written but it hasn’t been cashed-deposited by bank or otherwise cleared by the bank.

A

OUTSTANDING CHECK

43
Q

Summary of banking business activity that reconciles an entity’s bank account w its financial records. The statement outlines the deposits, withdraws, and other activities affecting bank # in certain period.

A

BANK RECONCILIATION STATEMENT

44
Q

To make one account consistent with another especially by allowing for transactions begun but not yet completed.

A

RECONCILE

45
Q

Having taken more money out of bank account than the account contained.

A

OVERDRAWN ACCOUNT

46
Q

Lets you borrow money through your current account by taking out more money than you have in the account. There is no charge for this. Also a type of loan.

A

OVERDRAFT

47
Q

investment style that mimics an index or matches a benchmark

A

passive

48
Q

type of mutual fund that tracks benchmark or index

A

Index Fund

49
Q

possibility of losses compared with the probablility of expected return on investment

A

risk

50
Q

amount that revenues exceed expenses; profit

A

surplus

51
Q

government watchdog entity for investments and securities (abbreviation)

A

SEC

52
Q

fee charged to an investor by broker to trade a security

A

commission

53
Q

document setting forth income and spending used for planning

A

budget

54
Q

standard used to measure performance of investment

A

benchmark

55
Q

ownership in an asset

A

equity

56
Q

legal precedure involving an entity unable to pay debts

A

bankruptcy

57
Q

investment vehicle comprised of securities using funds pooled from many investors

A

mutual fund

58
Q

debt investment wherein one party lends money to another

A

bond

59
Q

spreading investments in different securities/asset classes

A

diversification

60
Q

payment to an employee based on hours or days worked

A

wage

61
Q

amount earned on an investment expressed as %

A

return

62
Q

index fund that trades like a security

A

FDIC, NCUA, inflation, wants and needs, principal balance, APR, money value, captal market, money market, thrift (credit union not to make money but to cut profit margin), financial compensation

all 15 on doc

traditional IRA, educational 529, statement account (of principal and interest earnings), interest earning checking account (draws interest), CDs, simple interest, compound interst, bonds, mutual fund

63
Q

government entity that insures bank deposits (abbreviation)

A

FDIC

64
Q

investment vehicle comprised of securities using funds pooled from many investors

A

mutual fund

65
Q

debt investment wherein one party lends money to another

A

bonds

66
Q

calculated on original amount of loan

A

simple interest

67
Q

accumulated interest on previous accounts

A

compound interest

68
Q

amount paid in cash for asset from third party

A

money value

Personal Finance (5 decks)

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