Personal Finance Honors Final Exam Review

Present Value

the current value of an object or service

Opportunity Costs

this for that

Compounding

the process in which interest is earned on both the principal and on any previously earned interest

Future Value

the value of an asset at a specific date

Economics

The branch of knowledge concerned with the production, consumption, and transfer of wealth.

Federal Reserve System

The central banking system of the United States of America

Liquidity

the ease with which an asset can be converted into the economy's medium of exchange

Values

morals

Inflation

a general increase in prices and fall in the purchasing value of money.

Consumer Price Index

It measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households. It is usually calculated and reported by the Bureau of Economic Analysis and Statistics of a country on a monthly and annual basis

Assets

goods or services owned to make money

Market Value

the price at which goods or services would sell

Liabilities

debts that are owed

Personal Financial Statement

A personal financial statement is a document or spreadsheet outlining an individual's financial position at a given point in time. A personal financial statement will typically include general information about the individual, such as name and address, along with a breakdown of total assets and liabilities

Liquid Assets

assents the are cash or can be easily converted to cash

Deficit

An amount by which a resource, especially money, falls short of what is required. A deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets

Surplus

the opposite of deficit, when excess exists

Goals - SMART method of creating goals and the difference between short and long term goals

Specific, measurable, attainable, realistic, time bound

What's Principal vs. Interest?

principal is the initial amount put into an investment, interest is what is either earned(positive) or lost(negative)

What's compounding?

The process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. ... Compounding, therefore, differs from linear growth, where only the principal earns interest each period.T

What's money management?

Money management is the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group

Cash Flow Statement

A summary that shows total income and spending for a given time period

Net Worth Statement

A net worth statement is simply a personal balance sheet. It shows where you stand financially. It provides a summary of your assets minus your liabilities. In other words, your personal net worth is calculated by listing all that you own, and then subtracting all that you owe to get a net number

Budget

A plan for making and spending money

Income minus Expense results in...

net worth

Assets minus Liabilities results in...

income

What's the first step in budget planning?

calculate expenses

Difference between variable and fixed expenses.

variable are not predictable and fixed are planned out and known about in advance

Overdraft Protection

an automatic loan made to you if you write a check for more money than you have in your account

Rate of Return

The total return on an investment expressed as a percentage of the amount of money saved

Stop Payment Order

a request that a bank or other financial institution not cash a particular check

Credit Union

A nonprofit financial institution that is owned by its members and organized for their benefit

Certificate of Deposit

is a product offered by banks and credit unions that offers an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer them, although it's up to each bank which CD terms it wants to offer, how much higher the rate will be compared to the bank's savings and money market products, and what penalties it applies for early withdrawal.

Endorsement

signing the back of a check

Annual Percentage Yield

the interest rate an account pays per year

Discretionary Income

income remaining after deduction of taxes, other mandatory charges, and expenditure on necessary items

Bank Reconciliation

The process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate

Credit Card

allows the holder to purchase goods or services on credit, essentially a short term loan

ATM

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access most ATMs

The benefit of compounded interest

Over time higher amounts of money are earned even though it may not seem like a lot in the beginning

Which of these types of banks is likely to charge you lower fees and offer you lower rates?

To earn high interest rates on a Certificate of Deposit (CD), must you deposit a minimum amount?

CDs require minimum deposits anyways, but the higher amount put in the higher the agreed return will be

What does the Financial Deposit Insurance Company (FDIC) insure?

As of 2018, the FDIC insures deposits up to $250,000 per depositor as long as the institution is a member firm. The FDIC covers checking and savings accounts, CDs, money market accounts, IRAs, revocable and irrevocable trust accounts, and employee benefit plans.

If you deposit $100 in an account with an annual interest rate of 6% compounded monthly, after twelve months will you have $106?

No

What's a Money Market Account?

A money market account is an interest-bearing account at a bank or credit union. Sometimes referred to as money market deposit accounts (MMDA), money market accounts (MMA) have some features not found in other types of accounts. Most money market accounts pay a higher interest rate than regular passbook savings accounts and often include check writing and debit card privileges. They also come with restrictions that make them less flexible than a regular checking account. They are important for calculating tangible net worth.

Are Credit Cards what you use for long term loans?

Oh heck nah

What's it called when you use a Debit Card to purchase an item at a retail store?

direct transaction

What's a checking account and is it best suited for saving money over a period of years?

Certificate of Deposit

Closed-end Credit

Closed-end credit is a loan or type of credit where the funds are dispersed in full when the loan closes and must be paid back, including interest and finance charges, by a specific date. The loan may require regular principal and interest payments, or it may require the full payment of principal at maturity

Finance Charge

A finance charge is a fee charged for the use of credit or the extension of existing credit. It may be a flat fee or a percentage of borrowings, with percentage-based finance charges being the most common. A finance charge is often an aggregated cost, including the cost of carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.

Collateral

Collateral is an asset that a lender accepts as security for extending a loan. If the borrower defaults on her loan payments, the lender may seize the collateral and sell it to recoup some or all of his losses. Collateral can take the form of real estate or other kinds of assets, depending on what the loan is used for.

Annual Percentage Rate (APR)

n annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan

Simple Interest

interest only paid on the principal

Principal

The initial amount invested or given

Interest

money paid regularly at a particular rate for the use of money lent, paid upon the principle

Bankruptcy

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor

Open-end Credit

a pre-approved loan between a financial institution and borrower that may be used repeatedly up to a certain limit and can subsequently be paid back prior to payments coming due. The pre-approved amount will be set out in the agreement between the lender and the borrower.Aug 17, 2019

Grace Period

A grace period is a period immediately after the deadline for an obligation during which a late fee, or other action that would have been taken as a result of failing to meet the deadline, is waived provided that the obligation is satisfied during the grace period

What are the 5 "C's" that lenders look for in an individual

The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many traditional lenders to evaluate potential small-business borrowers

What's Chapter 7 Bankruptcy? What's Chapter 13?

What's a credit card and what are credit card holders known as if they pay off their bill each time - on time?

Deadbeat is a slang term for a credit card user who pays off his or her balance in full and on time every month

Signing up for making Minimum Monthly Payments may be the only way to afford a loan or a good, but is it always the right choice? Why or why not?

It is cheaper short term, but is often always more expensive long term

Did you know that interest is tax-deductible on a Home Equity Loan?

Under the new law, home equity loans and lines of credit are no longer tax-deductible. However, the interest on HELOC money used for capital improvements to a home is still tax-deductible, as long as it falls within the home loan debt limit

Is it Co-signing or Guest-signing?

The act of signing cooperatively with a borrower for a loan. A cosigner serves as an additional repayment source for the primary borrower. A cosigner can help a borrower to obtain loan terms that they may have otherwise been unable to be approved for

What's Speculative Stock? Is it the highest risk stock?

a stock that a trader uses to speculate. ... Many traders are drawn to speculative stocks due to their higher volatility, it is one of the more riskier ones, yes

Blue-chip stocks

is considered a safe investment that generally attracts conservative investors. f you are interested in a blue-chip stock, look fora company that shows:

- Leadership in an industry

- A history of stable earnings

- Consistency in the payment of dividends

Income stocks

pays higher-than-average dividends compared to other stock issues. This is the type of stock issued by:

- Gas and electric companies

- Companies such as Bristol

-Myers Squibb and Dow Chemical

The buyers of preferred stock are also attracted to this type of common stock because the dividends are predictable

Growth stocks

look for signs that the company is engaged in activities that produce higher earnings and sales revenues,such as:

- Building new facilities- Introducing new, high-quality products

- Conducting recognized research and development

Stocks issued by these corporations generally do not pay dividends.

Cyclical stocks

When the economy is improving, the market value of this stock usually goes up, and the reverse is also true. This is because the products and services of these companies are linked directly to the activities of a strong economy.

Stocks issued by Ford and Centex (a construction firm) are considered cyclical stocks

Defensive stocks

The companies that issue these stocks:- Have steady earnings- Can continue dividend payments even in periods of economic decline- Many blue-chip stocks and income stocks, such as those issued by Procter & Gamble, are defensive stocks.

large-cap and small-cap stocks

The stocks listed in the Dow Jones Industrial Averages are typically these stocks. These stocks:

Are issued by a corporation with a large number of shares and a large amount of capitalization

Appeal to conservative investors because they are considered secure

Since small-cap stocks are issued by smaller,less-established companies, they are considered to be a higher investment risk

Penny stocks

This stock typically sells for less than $1 a share, although it can sell for as much as $10 a share. It is difficult to keep track of a penny stock's performance because information about them is hard to find. Penny stocks should be purchased only by investors who understand the risks.

Preferred Stock Advantages

- A specific amount of money

- A percentage of the par value of the stock

Some companies have:

- Cumulative preferred stock

- Convertible preferred stock

- A participation feature

Common Stock Advantages

- Voting rights at annual meetings

- Preemptive rights- They receive dividends

- The dollar value of their stock appreciates(increases)

- The stock splits and increases in dollar value

Come prepared with the formulas for evaluating stocks, bonds, and mutuals funds

What's the difference between corporate bonds and government bonds?

Corporate bonds usually offer a higher yield than government bonds because their credit risk is generally greater

What's the difference between stocks and bonds?

The difference between stocks and bonds is that stocks are shares in the ownership of a business, while bonds are a form of debt that the issuing entity promises to repay at some point in the future. This means that stocks are a riskier investment than bonds-;

Understand the levels of risk and their order, from low to high, defined in the Investment Pyramid.

Rule of 72 and how to use it

The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself