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Personal Finance > Prelim 2 > Flashcards

Prelim 2 Flashcards

1
Q

True/False: Owning a home is better than renting because home ownership builds equity and you end up making a profit.

A

False

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2
Q

What are the 5 Cs of credit?

A
  1. Capacity
  2. Capital
  3. Collateral
  4. Character
  5. Conditions
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3
Q

What does capacity in the 5 Cs of Credit?

A
  • Are you able to repay the loan?
  • Do you have sufficient income?
  • How big are your current payment obligations?
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4
Q

What is capital in the 5 Cs of Credit?

A
  • Do you have assets that could be liquidated to pay the loan, if necessary?
    • How much are your assets worth?
    • How much are your total debts?
    • What is your net worth?
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5
Q

What is collateral in the 5 Cs of Credit?

A
  • Are you pledging security for the loan?
    • Are you pledging any assets as security for the loan?
    • Do you have money in checking, savings and investment accounts?
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6
Q

What is character in the 5 Cs of Credit?

A
  • Are you the type of person who takes debt responsibility seriously?
    • Have you used credit before and do you have a clean credit record?
    • Have you ever filed for bankruptcy?
    • How long have you lived at the same address and worked for your current employer?
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7
Q

What does condition in the 5 Cs of Credit?

A
  • Any unique circumstances, economic conditions to consider?
    • Do you have a secure job?
    • Is the company your work for in good financial shape?
    • Are general economic conditions favorable?
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8
Q

What are the rules of effective cash management?

A
  • Balance your checkbook regularly
  • Pay your bills on time
  • Pay yourself first
  • Evaluate alternative accounts and providers
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9
Q

What are common mistakes in managing money?

A
  • Overspending from impulse buying and using credit cards
  • Not having enough liquid assets (cash and checking account) to pay current bills
  • Using savings or borrowing to pay for current expenses
  • Failing to put unneeded funds in an interest-earning savings account or investment plan
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10
Q

What are some types of financial services?

A
  • Savings
    • Time deposits in savings, CD
  • Payment Services
    • Checking accounts are called demand deposits
    • Automatic payments
  • Borrowing for the short-term and long-term
  • Other financial services
    • Insurance, investment real estate purchases, tax assistance, and financial planning are additional services you may use
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11
Q

What is an asset management account?

A
  • Also called a cash management account
  • Offered by brokers and financial institutions
  • Provides a complete financial service program for a single fee, benefits include:
    • Tracking money in one location
    • Consolidated statements
    • Lower fees due to higher balance aggregation
    • Ease for tax reporting
    • Ease for communicating financial issues to family
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12
Q

What is true of check-cashing outlets?

A

True:

  • More convenient than banks
  • Industry is experiencing rapid growth
  • Largely unregulated market
  • The fees charged are more than banks
  • Charge 1-20% of the face value of a check: 2-3% is average
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13
Q

Financial Institution interest rate types?

A
  • Prime Rate
  • Discount Rate
  • Fed Funds Rate
  • Certificate of Deposit Rate
  • Treasury Bill Rate
  • Treasury Bond Rate
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14
Q

What is the prime rate?

A

Rate that large banks charge their business customers

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15
Q

What is the discount rate?

A

•Rate that Federal Reserve charges member banks for short-term borrowing

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16
Q

What is a Fed Funds Rate?

A

Rate that large banks charge each other for very short-term borrowing

17
Q

How much in cash should I keep in an emergency fund?

A
  • It depends on your circumstances
  • 3 to 6 months of living expenses (traditional answer)
  • 1 - 3 years of living expenses (if you are approaching retirement or in retirement)
18
Q

What does credit report data include?

A
  • Personal Data
  • Credit History
  • Inquiry
  • Public Records
  • Personal Statement
19
Q

What is the current average credit card APR (Annual Percentage Rate)?

A

15.42%

(if your rate is more than this and you have good credit than your rate is too high)

20
Q

Does federal law allow you to access your credit score every 12 months?

A

No, Federal law does not entitle you to free access to your actual credit score (pay for it)

21
Q

What is the most expensive interest rate calculation method for the borrower?

A

Bank Discount Interest Method

22
Q

What is the nominal rate?

A

The quotes rate

23
Q

What is the major reason people are unable to pay their bills?

A

Excessive use of credit i.e. poor money management

24
Q

What is the Consumer Credit Counseling Service (CCCS)?

A

A non-profit which is supported by contributions from banks, merchants, etc.

  • Provides education about credit and budgeting
  • Provides help with spending plan
  • Provides debt counseling services for those with serious financial problems
  • Can develop a debt consolidation plan and negotiate reduced interest rates
25
Q

Service contracts

A

May not be a wise decision because of costs and exclusions

26
Q

What is a warranty?

A

A promise

  • Express warranty - in writing
  • Implied warranty -assumed by the law
27
Q

Who tends to pay more for automobiles men or women?

A

Women tend to pay higher prices for cars because they don’t negotiate as effectively as they should.

28
Q

Your car may be repossessed if it’s on private property, your driveway or in your garage?

A

True – as long as it doesn’t involve force, a breach of peace or entry into a dwelling

29
Q

The 3 most common considered factors when selecting a home are the:

A

location, location and location

30
Q

The assessed value of your home is the:

A

A value used to calculate property taxes

31
Q

Who does the real estate broker work for?

A

The sellers

32
Q

What types of real estate contracts are there?

A
  • Listing Agreements
  • Contracts for Sale
  • Mortgage Contracts
  • Leases
33
Q

What are some metrics used to evaluate credit?

A
  • Credit Score
  • Debt Service Ratio
  • Payment Ratio
  • Loan/Value Ratio
34
Q

What are some mortgage types?

A
  • Fixed Rate (“conventional”) Mortgage
    • Fixed rate, 15 - 30 years, level payments
  • Adjustable Rate Mortgage (ARM)
    • Fixed term, fluctuating payments, caps on annual increase and life of loan
    • “teaser” rates
  • Balloon Mortgage
  • Reverse Annuity Mortgage
35
Q

How do mortgage lenders evaluate the property?

A
  • Appraisal
  • Quality of the property and the market
  • Environmental issues

Personal Finance (4 decks)

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