FBLA Introduction to Financial Math

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Finance

9th

139 Terms

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Practice Test answers

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ABA Number

9 digit code that appears at the bottom of a check to identify the specific financial institution (helps identify the bank); also called a routing number

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Bank statement

A record that summarizes all the transactions with an account over a certain time period (typically sent/produced once every month)

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Cancelled Check

A check that has cleared the depositor's account and has been marked by the bank. It is a proof of payment. If check is lost, check cannot be used.

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Compound Interest

Interest that keeps growing depending upon the frequency of compounding. Equation: A= P (1 + r/n)^(nt)

A= future value of investment/loan (interested is included) P= principle amount (initial value) r= annual interest rate (decimal) n= the number of times that interest is compounded per year t= the number of years the money is invested or borrow for

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Cost of Goods Sold

cost of the materials used to create goods, labor charges, distribution costs, etc. Also referred to as "cost of sales"

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Current Assets

Assets that can quickly be turned into cash (within a year or so). Examples: inventory, accounts receivables, cash

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Demand Deposit

A certain amount of funds deposited that can be withdrawn at any point in time (from a savings or checking account) without prior notice

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Drafts

(bank draft) A bank draft is a payment on behalf that is guaranteed by the issuing bank. Used for large purchases or when seller has no relationship with buyer. Payee wants a highly secure form of payment.

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Floating a check

Writing a check knowing your account won't have sufficient funds to covering it, and hoping within a few days that your account will have enough funds.

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Installment Loans

A loan that is repaid over time with a set number of payments (usually scheduled by month)

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Liabilities

Financial debt or financial obligations that arise during business. Ex: mortgages, accounts payable, etc.

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Liquidity

How easy it is to turn assets in cash; these type of assets can be used immediately after being quickly converted to cash.

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Money Order

A paper document similar to a check, but is prepaid. Since they are prepaid, they will most likely not bounce, and contain less personal information than a normal check.

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Parameter

...

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Payor/Maker

(For a check) Someone who is liable to pay for something, or agrees through a note (check) to pay a specific amount of money, due at a certain time. Basically, person who pays for something.

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Quotient

(Financial quotient) ability for one to obtain and successfully manage ones wealth by an understanding of money. Based upon 6 categories: Spending Credit and debt Career and Income Investing Financial Planning Risk and protection

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Rational Number

A number that is formed by dividing 2 integers. Ex: 1/2, 5, 38/10. Numbers that do not work are pi, square roots (root 2, etc.)

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Reconciliation

Proving or showing that an account balance is correct. Used to ensure money leaving an account matches money spent

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Stop Payment Order

A request made to a financial institution (bank) to cancel a check or payment that has not been processed yet. Example of usage is when wrong amount is sent, or purchase has been cancelled.

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Operating expenses

Examples: Insurance, supplies, attorney fees, payroll, rent, repairs, etc.

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Financial statements

Examples: Income statement - revenues and expenses are reported, shows how much a business made or lost in a time period

Balance sheet (also called a Statement of Financial Position) - assets and liabilities are reported, shows how much someone or something is worth at a certain point in time

Cash flow statement - A statement that shows the movement of cash and bank balances over a period of time. Operating activities, investing activities, and financing activities are reported. Statement of Changes in Equity

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Current Ratio

Formula: Divide current assets by current liabilities

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Gross Profit

Also called: Gross margin, sales profit, gross income Formula: Revenue - Cost of goods sold

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Cashiers check

Because the funds are drawn out of the banks account and guaranteed to be cleared by the bank, usually cashiers checks are very safe. To use a cashiers check, you must have enough money in your account, as you prepay.

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Certified Check

Here, the banks are drawn out of a individuals account, but the bank will confirm that the pay or has enough funds for this check to clear, and that the check is genuine. Check is signed by both Bank and individual.

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Endorsements

(For checks)

  1. Blank Endorsement - signing your name on the back, anyone can deposit this check, even if it isn't theirs, used to cash a check at a bank

  2. Restrictive Endorsement - by writing "For Deposit only and signing your name, the check can only be deposited into your account.

  3. Special Endorsement - Used when giving check to another person. Usually, you write "Pay to the order of (name)" and sign your name.

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Validity of check

This note is valid for 180 days after being written

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Auto insurance

Factors that affect cost of this: Gender and age Marital Status: married/unmarried, etc. Where you live - more uninsured drivers/more cars cause higher premiums Credit Score Profession Safety Rating Vehicle Size Age of Car Likelihood of theft Driving History Driving Activity

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Employee Benefits

Examples: Health Care insurance Paid Leave Retirement Plans Social Security Workers Compensation

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Types of Credit Cards

Rewards: best for people who pay month to month and carry no credit card debt. You are given a reward by using the credit card

Low Interest: best for people who carry credit card debt. Low interest enables you to pay off debt at lower rates

Balance Transfer: meant for those with a lot of credit card debt. Allow you to shift your debt from one card to another, and you are given a period of 6-21 months to pay it off without interest. Usually a 5% balance fee applies

Secured Credit Cards: Meant for those with no or poor credit. When you open an account, you must have a collateral equal to or greater than your credit limit.

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5 Cs of Credit

Capacity- Borrowers ability to pay back loan

Capital- Amount of money a borrower puts down. For example, if a borrower puts down a large down payment, more likely to get mortgage

Collateral- Helps get a loan, incentive. If loan is not paid, lender can repossess collateral

Conditions- conditions of the loan, such as APR or principal amount

Character- borrowers reputation of paying back debts

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disposable personal income

amount of money that households have available for spending and saving after income taxes have been accounted for

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3/10 net 30

3% discount if paid in 10 days, due in 30 days

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a time and a half

1.5 times the normal wage rate

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whole life insurance

combines life insurance protection with savings

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cash value

whole-life insurance builds up this money used to pay retirement benefits to be insured - can be borrowed at favorable interest rates

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cost + markup = selling price

markup formula

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52

approx how many weeks in a year

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total benefits - net expenses = net benefits

formula for net benefits

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deductible

amount you need to pay before the insurance overs it

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deductibles

amount of $ that must be paid before an insurance company will pay a claim

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claim

formal request to an insurance company asking for a payment based on the terms of the insurance policy

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subtrahend

the # that is to be subtracted

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minuend

from which another # will be subtracted

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APR

annual percentage rate

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simple interest

only earn interest on your starting principal

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compound interest

interest also earns interest

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down payment

an initial payment made when something is bought on credit

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principal

original sum invested

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finances

provide/ pay for something

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weighted average

1)multiply data by weight 2) add weight 3) divide

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depreciation

a reduction in the value of an asset with the passage of time, due in particular to wear and tear.

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types of depreciation

straight line accelerated (declining balance and sum of years)

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def and calculate straight line depreciation

spread cost over life of fixed asset deduct salvage value SL = Cost/Life

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Declining balance depreciation

Depreciation rate is multiple of straight line methos

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sum of years

Digits of each year deduct salvage value (base depreciation) (Digit of year/ total years)

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markup

% increase when a store increases price of product from what they bought it for to make a profit

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international system of units

metric system

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Capital

The excess of a company's assets over its liabilities

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Assets

Property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies

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Legacies

An amount of money or property left to someone in a will

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Collateral

Something pledged as security for repayment of a loan, a to be forfeited in the event of a default

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Trustee

an individual person or member of a board given control or powers of administration of property in trust with a legal obligation to administer it solely for the purposes specified.

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Heir

a person legally entitled to the property or rank of another on that person's death.

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Executer

a person or institution appointed by a testator to carry out the terms of their will.

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Credit cash

All incomes and gains. An entry which is passed when there is a decrease in assets or an increase in liabilities and owners equity. If referring to a personal account credit is the giver. In the real account it's what goes out. In a nominal account it is all incomes and gains. (Right) increase in credit is due to rise in share holders fund, membership fees, rental income, retained earnings, account payable, etc.

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Debit cash

All expenses and losses. An entry which is passed when there is an increase in asset or decrease in liabilities and owners equity. (Left) if on personal account it's the receiver. On a real account it's what comes in. On a nominal account it's all expenses and losses. It's increase in debit is due to rise in cash, inventory, plant and machinery, land and building,expenses like salary, insurance, tax,dividend,etc.

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Current assets

cash and other assets that are expected to be converted to cash within a year.

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Current liabilities

amounts due to be paid to creditors within a year

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Endorsement

a clause in an insurance policy detailing an exemption from or change in coverage.

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NSF

NSF International is an accredited, independent third-party certification body that tests and certifies products to verify they meet these public health and safety standards. Products that meet these standards bear the NSF mark. NATIONAL SANITATION FOUNDATION

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Maker

a person or thing that makes or produces something.

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Payee

a person to whom money is paid or is to be paid, especially the person to whom a check is made payable.

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Endorser

A person who is authorized to sign a negotiable security in order to transfer ownership from one party to another, or to approve the terms and conditions of a contract.

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ABA numer

An ABA number (also known as routing number or routing transfer number) is a sequence of nine numeric characters used by banks to identify specific financial institutions within the United States.

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Overdraft

a deficit in a bank account caused by drawing more money than the account holds.

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Bounce check

When there are insufficient funds in an account, the bank will "bounce the check" (refuse to honor it). Banks and vendors frequently charge fees for bounced checks, sometimes exceeding the amount for which the check was written.

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Net worth

Net worth (sometimes called net or wealth) is the total assets minus total outside liabilities of an individual or a company. Net worth is used when talking about the value of a company or in personal finance for an individual's net economic position. Put another way, net worth is any asset owned minus any debt owed.

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Net income

In business, net income (total comprehensive income, net earnings, net profit, informally, bottom line) is an entity's income minus cost of goods sold, expenses and taxes for an accounting period.

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Tenant

a person who occupies land or property rented from a landlord.

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Character

A symbol representing a letter or number

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1pint

2 cups(c)

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1 quart

2 pints(pt)

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1cup

8 fluid ounces

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1 gallon

128 fl. Oz.

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1 liter

33.814 us fluid ounces

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1 mile

1.609 kilometers

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Savings Account

A specific account that earns interest. Compared to a checking account, it is not intended for daily use, rather for funds to accumulate for future use. It earns more interest. Checking accounts and savings accounts can be linked, so over overdraw or overdraft will be avoided if checking account were to be depleted. Limited withdrawals

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Business checks are valid for how long?

6 months

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Income statement

A statement that shows in detail a business's income and operating expenses, also called a profit-and -loss statement. Shows gross profit, net sales, cost of goods sold, net income...,

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Mutual fund

A kind of investment offered by an investment company, which accumulates the saving of many individuals and invests them in a portfolio of stocks, bonds, or both. A fund manager (or "portfolio manager") decides how to invest the money, and for this he is paid a fee, which comes from the money in the fund.

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Compound interest/Computation

Interest earned not only on the original principal but also on the interest earned during previous interest periods, earning interest on interest. Use equation A=P(1 + r/(number of periods per year) )^(# of years x # of periods per year) Example: Principal=$1000, Interest Rate=6%, Compounded quarterly, amount after one year? 1)1000x.06x.25=15 1000 + 15 = 1015 2)1015x.06x.25=15.225 1015 + 15.225 = 1030.225 3)1030.225x.06x.25=15.453 1030.225 + 15.453 = 1045.68 4)1045.68x.06x.25=15.685 1045.68 + 15.685 = 1061.364 Amount at end of year = $1061.36 $61.36 is the compound interest

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