Personal Finance 5 Flashcards

Terms Definitions
A person's monthy payment.
protection against possible financial loss
home prices have generally climbed steadily over the years
examples of real property
commercial banks
financial institutions that accept deposits and use the funds to provide business and personal loans
the___is importatnt to investors because is reveals how aggressively the stock is being priced in the market
P/E ratio
corporations sell common stock to finance thier business start-up costs and help pay for their ongoing business activities
a limited partnership of a syndicate si formed by limited partners who assume unlimitedfinancial liability
Asset Management Accounts
Comprehensive financial services packages offered by a brokerage, firm, which can include a checking account; credit and debit cards; an MMMF; loans; automatic payment of fixed payments such as mortgages; brokerage services (buying and selling stocks or bonds); and a system for the direct payment of interest, dividends, and proceeds from security sales into the MMMF.
command economy
The government determines the prices of goods in a ______________.
Cumulative preferred stock
stock whose unpaid dividends accumulate and must be paid before cash dividends are paid to common stockholders.
opportunity cost
economic concept that measures the best alternative use of time, money, or some other resource
financial responsibility law
state legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident
Bonds are considered "junk" bonds if they have financial ratings of___or below
Private insurance companies
• Private insurance companies ○ Individual policy ○ Group policy sold to an employer ○ Coordination of benefits provision
Definite financial obligations are referred to as
a. variable expenses
b. fixed expenses
c. equity
d. investment assests
b. fixed expenses
an agent who negotiates contracts of purchase and sale (real estate, commodities, or securities.)
Bills for utilities, telephone, car expenses, and other irregular expenses that are not tax deductible should be kept for a _____ _______ so that you can accurately report the cost in your budget and personal cash flow statements.
full year
Pay Yourself first
Means to automatically route your specified savings contribution from each paycheck at the time it is received.
Total return
a calculation that includes not only the yearly dollar amount of income but also any increase or deccrease in the original purchase price of the investment.
Total return = current return + capital gain
Net taxable estate
your testamentary net worth after subtracting your debts, liabilities, probate costs, and administration costs.
Tax-Exempt Income
Income that is not subject to tax
a contract that provides an income for life
a report made available to stockholders and other interested parties that includes a variety of financial and descriptive information about a firm's operations in the recent past.
annual stockholders' report
Speculative Risk
Speculative Risk • Chance of loss or gain • Uninsurable • Such as starting a small business or gambling
the book value for a share of stock is determined by deducting all liabilities from the corporations assets adn dividing the remainder by the number of outstanding shares of common stock
A legal process that allows part of your paycheck to be withheld for payment of a debt.
non-installment credit
credit provided for a short period, such as department store credit
Income on which the payment of taxes is postponed until some future date.
Reconciling a Budget
Adjusting income, expenses, and saving so that you don't spend more than you earn.
A bond that is backed only by the reputation of the issuing corporation. if the corporation fails to make either interest payments or repayment at maturity, debenture bondholders become general creditors, much like the firm's suppliers.
Power of attorney
A legal document authorizing some to act on one's behalf.
ID thief pretends to be an employee of a company that you know.
exclusive provdier organization (EPO)
renders medical care from affiliated health care providers
stock that is purchased on the hope that its price per share will increase
speculative stock
Estimating Your Life Insurance Requirements:The Easy Method
Estimating Your Life Insurance RequirementsThe Easy Method • Typically, you will need 70% of your salary for seven years while family adjusts • Current income X 7 X 70% or 4.9 X income • A common estimate is 5 times income
______ is fully deductible as an itemized deduction.
a. mortgage interest
b. credit card interest
c. an IRA contribution
d. a medical expense
a. mortgage interest
Prime Rate
The interest rate that banks offer to their best business customers, such as large corporations.
Risk Scale Pyramid: Low Risk
•Cash and Cash Equivalents
•CDs, Notes, US Treasury Bills
•Money Market/Bank Accounts
•Government Bonds/Debt
Balloon Payment Mortgage Loan
A mortgage with relatively small monthly payments for several years (generally 5 or 7 years), after which the loan must be paid off in one large balloon payment.
Implementing your financial plan:Achieving your financial objectives 2 things
1. A willingness to learn2.Appropriate info sources:-periodicals-financial institutions-personal financial software-the world wide web- financial specialist-courses and seminars
Clean price
It represents the price of a bond with no accrued or earned interest.
Municipal Bond
A debt security issued by a state or local government
What is Fair Credit Billing Act
Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.
Types of Health Care Coverages
Types of Health Care Coverages • Vision care ○ Some group plans include exams and glasses • Long term care insurance ○ Virtually unknown 15 years ago, but now is growing faster than any other form of insurance
an example of closed-end credit is
a. borrowing from your dad
b. revolving check credit
c. credit cards
d. installment sales credit
d. installment sales credit
What happens to Bonds if stocks go up?
Bonds go down
Present Value of money
*Current value for a future amount based on a certain interest rate and a certain time period.*Present value calculations are also called discountingpresent value of the amount you want in the future will always be less than the future value*can be computed for a single amount or for a series of deposits
three advantages by issuing convertible bonds
the interest rate on a convertible bond is often 1 to 2% lower than that on traditional bonds.
the conversion feature attracts investors who are interested in the speculative gain that conversion to common stock may provide.
if the bondholder converts to common stock, the corporation no longer has to redeem the bond at maturity
if I own a bond with a 7% interest rate and it matures during a declining interest rate economy, I would be subject to__risk
interest rate
Annual Percentage Rate (APR)
The cost of credit expressed as a yearly percentage.
cashier's check
a check that is written on behalf of a person to a specific payee and will be charged against a financial institution's account.
Components of a Comprehensive Financial Plan
1. Wealth and dependent 2. Building Wealth3. Securing basic needs4. Establishing a firm foundation
Credit-shelter trust (also called bypass trust, a residuary trust, an A/B trust, an exemption equivalent trust, or a family trust)
A trust that allows married couples to leave everything to each other tax free.  
Other Types of Insurance Policies :Group life insurance
Other Types of Insurance Policies • Group life insurance ○ Term insurance, cheap and reasonable ○ Often provided by an employer ○ No physical is required
What is a Form W-4?
A tax form where you claim allowances to determine how much tax will be withheld from each paycheck.
Why Does Health Care Cost So Much?
• High administrative costs • 26% of health care dollar vs. 1% in Canada• Use of sophisticated, expensive technologies• Duplication of tests and technologies• Increases in the variety and frequency of treatments• Increasing number and longevity of elderly people• Regulations that result in cost shifting rather than cost reduction
What is P.Y.F. or “pay yourself first”?
A concept whereby whenever you receive money, you immediately put a certain amount into an account that you will set aside to use later to meet a long-term financial goal.
How to read the mutual funds sections in the footnotes
"p" means a 12b-1 distribution fee is charged
"r" means a redemption charge may be made
"t" means both the p & r footnotes apply
"s" means the fund has had a stock spolt or paid a dividend
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