Shorter Exam 2 Dr Cheng

Monetary Asset

Cash or low-risk property easily converted into cash

Monetary Asset Management

Maximizing interest and minimizing fees while maintaining liquidity and safety

Liquidity

Speed and ease of converting an asset to cash

Three Uses of Monetary Assets

Everyday spending and emergency savings of three to six months and investments

FDIC

Federal Deposit Insurance Corporation that protects eligible bank deposits

FDIC Coverage Limit

$250000 per depositor per insured bank per ownership category

FDIC Joint Account

Each eligible co-owner is insured up to $250000 for their share of joint deposits at one bank

FDIC Investment Loss

FDIC does not cover losses from poor investment decisions

Checking Account

Deposit account for everyday transactions and withdrawals

Special Purpose Checks

Certified checks reserve customer funds while cashier's checks are bank issued and money orders are prepaid

Money Market Account

Interest-bearing account with some check-writing privileges

Certificate of Deposit

Interest-bearing savings instrument with a fixed maturity period

CD Laddering

Splitting money among CDs with different maturity dates

Joint Property Ownership

Survivorship transfers to surviving owner while tenancy in common permits inheritance and entirety applies to married couples

Credit

Receiving money or goods now with a promise to repay later

Advantages of Credit

Convenience and immediate purchasing power and financing expensive items

Disadvantages of Credit

Overspending and debt obligations and financial stress

APR

Annual percentage rate expressing borrowing costs

Truth in Lending Act

Requires disclosure of interest rates and finance charges

Credit Report

Record of borrowing history and debt repayment

Three Credit Reporting Agencies

Equifax and Experian and TransUnion

Credit Report Contents

Personal information and accounts and inquiries and public records and collections

Free Credit Report Website

AnnualCreditReport.com

Fair Credit Reporting Act

Allows consumers to dispute inaccurate information in credit reports

Consumer Statement

Consumer explanation of disputed information included in a credit report

FICO Payment History

Largest scoring factor at 35 percent

FICO Amounts Owed

Second-largest scoring factor at 30 percent

Other FICO Factors

Length of history 15 percent and new credit 10 percent and credit mix 10 percent

Identity Theft

Fraudulent use of another person's identifying information

Credit Freeze

Restricts access to a credit report to help prevent fraudulent new accounts

Fair Debt Collection Practices Act

Prohibits covered debt collectors from abusive and unfair and deceptive collection practices

Bankruptcy Chapters 7 and 13

Chapter 7 generally involves liquidation while Chapter 13 involves a repayment plan

Open-End Credit

Credit that can be used repeatedly as available credit is restored by repayment

Credit Limit

Maximum outstanding debt allowed on an account

Grace Period

Time allowed to pay qualifying new charges without interest

Finance Charges

Costs of credit such as interest and late fees and cash advance fees

Statement Date

Last day of the billing cycle included in a credit card statement

Minimum Payment

Smallest payment required by the creditor for the billing cycle

Payment Due Date

Date by which the credit card issuer must receive payment

Lost Credit Card Liability Classroom Rule

Slides use zero liability if reported within two days and up to $50 per card after two days

Billing Error Deadlines

Dispute within 60 days and acknowledgment within 30 days and resolution within 90 days

Unsecured Loan

Loan without specific pledged collateral such as most credit cards

Secured Loan

Loan backed by collateral such as an auto loan or mortgage

Collateral and Lien

Collateral is pledged property while a lien is a creditor's legal claim against property

Cosigner

Person legally responsible for repayment if the borrower fails to pay

Home Equity

Home fair market value minus outstanding mortgage debt

Loans to Avoid

Payday loans and pawnshop loans and car-title loans because of high costs

Credit Card TVM Inputs

PV is positive debt and PMT is negative payment and FV is zero with monthly periods

BEG Versus END Mode

Use BEG for beginning-of-period payments and END for end-of-period payments

Pure Versus Speculative Risk

Pure risk involves loss only while speculative risk involves possible gain or loss

Risk Management Steps

Identify exposures and estimate frequency and severity and choose a strategy and implement and evaluate

Peril

Actual cause of a loss such as fire or hail

Loss Frequency and Severity

Frequency means how often a loss occurs while severity means how large the loss could be

Four Risk Management Methods

Retain and reduce and transfer and avoid

Risk Frequency Severity Chart

Low low retain and high low reduce and low high transfer and high high avoid

Large-Loss Principle

Insure risks you cannot afford and retain risks you can reasonably afford

Physical Hazard

Tangible dangerous condition such as icy roads

Moral Versus Morale Hazard

Moral means dishonesty while morale means carelessness because insurance exists

Insurability Requirements

Accidental and definite measurable and noncatastrophic affordable loss with insurable interest

Deductible and Coinsurance

Deductible is paid first while coinsurance shares costs between insured and insurer

Bodily Injury and Property Damage Liability

Cover qualifying injury and property damage you cause to other people

Collision Coverage

Covers damage to your vehicle resulting from collisions and overturning

Comprehensive Coverage

Covers qualifying noncollision losses such as theft and fire and hail and animal contact

Uninsured Versus Underinsured Coverage

Protects against an at-fault driver with no insurance or insufficient insurance

Virginia Auto Liability Limits

50/100/25 means $50000 per injured person and $100000 per accident and $25000 property damage

Actual Cash Value Formula

Purchase price minus current age times purchase price divided by expected useful life

Health Insurance

Coverage protecting against qualifying medical expenses

Group Health Insurance

Coverage provided through an employer or other eligible group

COBRA

Law allowing qualifying individuals to temporarily continue group health coverage

COBRA Eligibility Classroom Rule

Employer must offer group coverage and meet the classroom threshold of 20 full-time-equivalent employees

Full-Time Equivalent Formula

Full-time employees plus part-time employees times average part-time hours divided by full-time hours

COBRA Coverage Cost

May cost up to 102 percent of the full insurance premium

COBRA 18 Months

Standard continuation period for termination or reduction in hours

COBRA 36 Months

Standard continuation period for death or divorce or loss of dependent-child status

Health Insurance Deductible

Amount the insured pays before applicable insurance coverage begins

Health Insurance Coinsurance

Patient's percentage of eligible medical costs after deductible

Maximum Annual Out-of-Pocket Formula

Annual deductible plus coinsurance cap in the professor's examples

Medical Bill Calculation

Subtract deductible then calculate patient coinsurance then apply the out-of-pocket limit

Medicaid Medicare and Medigap

Medicaid covers eligible low-income people while Medicare primarily covers older adults and Medigap supplements Original Medicare

Activities of Daily Living

Eating and bathing and toileting and transferring and dressing and continence