2304: AHRM Family Financial Management Study Guidelines for Exam 3 Chapter 10 Understand the component parts and application of HO policies. HO-1: Basic form homeowner's insurance HO-2: Broad form homeowner's insurance HO-3: Special form homeowner's insurance HO-4: Renter's or tenant's insurance HO-6: Condominium owner's insurance HO-8: Modified coverage older homes homeowner's insurance What kinds of supplemental coverage are available? When should they be purchased?
What is the difference between a named perils and all-perils policy?
What is the difference in ACV and replacement cost coverage on contents? Which requires the higher $ amount of coverage? What would be the ACV of an item costing $400 with a 10-year life, destroyed or stolen after two years? Ans: $320 What is the 80% rule? The 100% rule? How is each applied?
Understand the component parts and application of an auto policy. Understand and apply split-coverage limits. What is the difference between comprehensive and collision coverage? How do deductibles apply when getting reimbursement for a claim?
How can you keep costs down on HO and auto insurance?
Be able to work problems like numbers 2, 5, 7 and 8 (pp. 341-342). Answers are shown on Blackboard in the Course Documents Folder.
Chapter 11 How are the following important when investing? Taxes Time
Risk Diversification Market efficiency
Compare/contrast ownership and lending investments. What do you earn from each? What is nominal interest rate? What risks apply? What is the real rate of return?
What are the sources of risk when investing? Compare/contrast systematic and unsystematic risk.
What is asset allocation and why does it change over the life cycle? What 3 components make up a portfolio -- stocks, bonds, cash equivalents -- why?
Chapter 12 Know the terms describing the securities market (e.g., primary and secondary markets; seasoned new issue, IPO, common stock shares; OTC vs. organized exchange) Briefly, compare and contrast the NYSE, AMEX, regional exchanges and OTC -- consider volume of trading, number of securities traded, type of securities traded (including international), and regulation. Referring to Chapter 13 --- which index best applies to the organized exchanges? The OTC?
What role specialists do play in the market?
Identify the orders used to buy and sell stock.
Brokerage firms -- how do their costs and services differ? How does this compare to on-line trading?
What is buying on the margin? What is short selling? (no math, just conceptually what does each mean?)
Where might you look for reliable and unreliable investment information?
Chapter 13 Why buy stock? Define declaration date, ex-dividend date, and stock split. What are market indexes? What do they represent? How do they relate to the NYSE, the AMEX, or the NASDAQ?
Know how to read the basic stock information from a stock newspaper quote. Be able to identify the basic stock classifications -- risks, characteristics of each type? What is the P/E ratio? How is it used? (no other questions on stock valuation) P/E Ratio = price per share/EPS A P/E ratio of 20 means it is "selling at 20 times earnings." The higher the firm's earnings growth rate, the higher the firm's P/E ratio The higher the investor's required rate of return, the lower the P/E ratio. (Tied to interest rate changes or risk assessment changes for the company.)
Read "Why Stocks Fluctuate in Value" and consider risk/return discussion from Chapter 11. Same with "Risks Associated with Common Stocks."
Define the following stock investment strategies. What are the advantages/disadvantages of each? Dollar cost averaging purchasing a fixed dollar amount of a security at regular (specified) intervals Same dollar amount each period averages out fluctuations in the market and concentrates on the general trend Buy-and-hold strategy Involves buying a stock and not selling it for an extended period of time Helps investor avoid market timing Minimizes brokerage fees and transaction costs Postpones capital gains taxes Gains are taxed as long-term capital gains DRIPs (Dividend Reinvestment Plans) Automatically reinvest the dividends to purchase additional shares of stock without brokerage fees One major disadvantage is TAXES! Buying on the margin, or leverage increases purchasing power by borrowing part of what you invest Leverage magnifies capital gains and losses because the rate of return on the loan is fixed but the rate of return on the investment is not