FCS 323 Final Review
Prestige
"Gold," "silver," or "platinum" cards are all examples of _____________ cards.
Term Insurance
"pure protection" against early death; pays benefits only if the insured dies within the time period that the policy covers
Assets; Liabilities; Net Worth
A balance sheet includes ________________, _______________, and ____________________.
Default
A borrower who has failed to make a payment of principal or interest when due or meet any other requirement of a credit agreement is said to be in
Deductible
A clause that require you to pay an initial portion of medical expenses annually before receiving reimbursement is a/an
Mediation
A dispute solution that is not legally binding on either party is
Amounts owed Payment history Types of credit you use
A factor in the development of a credit score is
True
A lawsuit filed against a landlord for nonperformance may be heard in small claims court.
1
A point, as defined in the real estate market, is _________ percent of the loan amount.
True
A student who has lost group health care coverage under his or her parent's employer group plan due to the parent leaving the job is eligible to continue coverage through COBRA rights.
Non Forfeiture Values
Amounts stipulated in a life insurance policy that protect the cash value in the event that the policyholder chooses not to pay the required premiums are
Fortuitous Financial Personal
An insurable risk must be
True
Cash dividends are paid only on participating life insurance policies.
True
Cash-value life insurance is sometimes called permanent insurance.
Income
Child support received, Social Security benefits, gifts, financial aid refunds, and public assistance are all examples of
Equal; Set
Consumer credit can take the form of a loan that is repaid in ______ payments over a ________ period of time.
After all employer withholding including taxes
Disposable income is income
Spending
Financial objectives are rarely achieved without restraining
Will fail to pay a return to the investor
Financial risk relates to the possibility that the investment
Perils
Fire, theft, illness, and accidents are all examples of
Income Replacement
For families with children the bulk of their life insurance need relates to their
$50,000
Frank Rattiff tried to enter the 405 and caused a wreck. He had automobile insurance with limits of 30/50/15. What is the maximum this insurance policy would pay for the total of personal injury liability claims in the accident?
Roth IRA
IRA funded with after-tax money (& thus not tax deductible) that grows on a tax-deferred basis; withdrawals are not subject to taxation
True
If the home seller rejects an offer after accepting earnest money, he or she must return the earnest money to the potential buyer.
Conservative
If you have a(n) ____________ investment philosophy, you accept very little risk and are generally rewarded with relatively low rates of return.
1,000
Lance, a volunteer baseball coach, was hit by a hard line drive. As a result of the injury, Lance was taken to the emergency room for treatment and admitted to the hospital. Lance's covered expenses totaled $4,000. How much of the $4,000 will Lance have to pay if these are his first medical expenses of the year and he has the following health insurance coverage? • $500 deductible per year• 80/20 coinsurance• $1,000 per year out-of-pocket coinsurance cap
Front-End and Back-End
Lenders use _______ ratios when setting limits on how much a home buyer can borrow.
True
Life insurance proceeds are nontaxable to the beneficiary.
The corporate bond earning 7.0 percent. 7x(1-.25) = 5.25 (yield)
Linda is trying to decide between investing in a tax-exempt municipal bond earning 5.0 percent or a taxable corporate bond earning 7.0 percent. Using the after-tax yield formula, which bond is going to give Linda the best return on her investment if she is in the 25% tax bracket?
Systematic Risk
Market risk is known as
7
Negative credit information (excluding bankruptcy) can generally be included on a credit file for ___________ years.
the amount of rent and related expenses the tenant rights the lease agreement and restrictions
Prospective renters need to consider
Add-On Loan
Refinancing a loan for more money than was originally owed is called a(n)
Fixed Expenses
Rent and insurance payments are examples of
Random Risk
Risk associated with owning only one investment of a particular type that, by chance, may do very poorly in the future due to uncontrollable or _____ factors that do not affect the rest of the market
Stocks Bonds Mutual funds
Securities are made up of
Capital Gains
Selling shares of stock for more than you originally paid is called
Principal, Interest, Taxes, Insurance
The PITI acronym in mortgage lending stands for
Price
The first consideration in any negotiation is
Assets-Liabilities
The formula for calculating net worth is
Dollar Cost Averaging
The investment strategy where an investor buys a fixed dollar amount of stocks or mutual funds regularly over a long period of time is called
Amortization
The method of paying off a loan through which a portion of each payment goes to the principal and a portion of each payment goes to the interest with the interest portion declining and the principal portion increasing as the debt is paid down is called
Gain and Loss; Only Loss
The primary difference between a speculative risk and a pure risk is that there is a chance for ______________ in a speculative risk but a chance for _____________ in pure risk.
Provide direction for overall financial planning
The primary purpose of setting long-term goals is to help
Acceptable quality at a fair price
The product that is the best buy will be the one with the
Gross Domestic Product (GDP)
The statistic that measures the value of all goods and services produced in the United States is the
Mortgage interest and property taxes
The tax deductible expenses related to home ownership are
346000/168000 = 2.06 anything over 1 is ok assets
Tom and Kelly McDonald have total assets valued at $346,000 and total debt of $168,000. What is Tom and Kelly's asset-to-debt ratio?
-access to the information in your credit file -accurate, relevant, and recent information -investigation of disputed information
Under the Fair Credit Reporting Act, the law requires
Tiered Pricing
Under the concept of ________________, lenders may offer lower interest rates to applicants with the highest credit scores while charging higher rates to more-risky applicants.
True
Universal life insurance provides both the pure protection of term insurance and the cash-value buildup of whole life insurance.
Leverage
Using borrowed funds to make an investment is called
72/4 = 18
Using the Rule of 72, calculate how quickly $1000 will double to $2000 at an interest rate of 4 percent.
Transferring Risk
When a star running back pays an insurance company to insure his legs, this is an example of
Subtracted from the face value (death benefit)
When an insured dies, any outstanding loan balance is ____ to determine the death benefit.
Rule of Three
Which "rule" says to compare at least three alternatives before making a major purchase?
Unknown job stability in the geographical area
Which of the following characteristics would cause a person to prefer renting over buying housing?
Self-employment income
Which of the following is an example of earned income?
The beneficiary receives the sum of the face amount and the cash value
Which of the following is not characteristic of a cash-value life insurance policy?
Buy a $3,000 computer in 18 months
Which of the following is the best example of a well-stated financial goal?
Cash-flow statement
Which of the following provides information about a person's financial condition at a specific time?
The warranty will cover the product for at least three years after purchase
Which of the following provisions is not legally required as part of a full warranty?
Life insurance benefits received Child support Gifts of money
Which of the following types of incomes is (are) exclude from federal income taxation?
Standard Deduction
Which of the following types of subtractions cannot be taken by a taxpayer if he or she itemizes deductions?
Final Expenses
Which one of the following life insurance needs is required by every adult?
Waiting Period
You can help yourself afford a longer benefit period under a long- term care insurance plan by selecting a longer
Acceleration
You might find yourself obligated to pay an entire debt in full if you miss several payments because of the ____________________ clause found in most installment loan contracts.
Portfolio
Your collection of multiple investments in different assets chosen to meet your financial goals is your
Copayment
Your health insurance requires that you pay $50 each time you visit the doctor's office and $15 for each prescription drug. This is an example of
True
Your need for life insurance will change significantly over your life-cycle
True
Your standard of living is where you would like to be and your level of living is where you actually are.
Aggressive
____ investors primarily seek capital gains.
Speculative
_____ risk exists in situations that offer potential for gain as well as for loss.
Mortgage
__________ insurance is generally required when a borrower makes a small or no down payment.
Real estate property taxes Homeowner's insurance premium Principal and interest
____________ is (are) generally part of the monthly house payment.
Present Value
_________________ is the current value of an asset that will be received in the future.
Large-Loss Principle
a basic rule of risk management that encourages us to insure the risks that we cannot afford and retain the risks that we can reasonably afford
Consumer Price Index
a broad measure of changes in the prices of all goods and services
Exemptions
a legally permitted amount, an allowance to reduce one's taxable income, based on the number of people supposed by the taxpayer's income
Recession
a recurring period of decline in total output, income, employment, trade, usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy
Copayment
a requirement in a health care insurance policy that makes you pay a certain dollar amount each time you have a specific covered expense item, such as to a doctor's office and for prescription drugs
Defined Contribution Plan
a retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of each of its employees
Adjustments
a special class of a dozen-plus subtractions from gross income that ____ or reduces one's income to get the income down to just AGI
Inheritance Tax
a tax imposed by 8 states that is assessed on the descendent's beneficiaries who receive inherited property
Progressive Taxes
a tax that _________ increases as a taxpayer's taxable income increases
Social Security Credits
accumulated quarterly credits to qualify for Social Security benefits by paying FICA taxes
Probate Property
all assets other than non___ property
Subrogation Rights
allow an insurer to take action against a negligent third party to obtain reimbursement for payments made to an ensured
Tax Credits
allows a reduction in one's tax liability on a dollar-for-dollar basis that is a direct subtraction of your tax liability
Peril
an event that can cause a financial loss
Credit Score
an indication of a person's credit worthiness or how likely the individual will be able to repay any credit extended in a timely manner
Deductible
an initial portion of any loss that must be paid before collecting insurance benefits
Certificate of Deposit
an interest-earning savings instrument purchased for a fixed period of time, ranging from 6 months to even 5 years
12b-1 Fees
annual fees that some "no-load" fund companies deduct from a fund's assets to compensate salespeople and pay other expenses
Joint Tenancy with Right of Survivorship
annuity whose payments continue to a surviving spouse after the participant's death; often equals at least 50% of participant's benefits
Hazard
any condition that increases the probability that a peril will occur
Index Mutual Funds
are those funds whose investment objective is to achieve the same return as a particular market index by buying and holding all or a representative selection of securities on it
Law of Large Numbers
as the number of members in a group increases, predictions about the group's behavior become increasingly accurate
Acceleration Clause
clause in a credit contract that allow a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met, such as missing one or more repayments
Ordinary Income Dividend Distribution
distributions that occur when the fund pays out dividends from the stock and interest from the bonds it hold in its portfolio; these are passed onto the investor quarterly
Non-Probate Property
does not go through ________; includes assets transferred to survivors by contract
Compound Interest
earning interest on an interest and arises when interstate's is added to the principal so that, from that moment on, the interest has been added also to earns interest
PITI
elements of a monthly real estate payment consisting of principal, interest, taxes and insurance
Defined Benefit Plan
employer-sponsored retirement plan that pays lifetime monthly annuity payments to retirees based on a predetermined formula
Vesting
ensures that a retirement plan participant has the right to take full possession of all employer contributions and earnings
Points
fee that is equal to 1% of the total mortgage loan amount
Credit Bureau
firm that collects and keeps records of many borrowers' credit histories
Bond Funds
fixed-income funds that aim to earn current income higher than a money market fund without incurring undue risk by investing in a portfolio of bonds and other low risk investments the pay high dividends and offer capital appreciations
Asset Allocation
form of diversification in which the investor decides on the proportions of an investment portfolio that will be devoted to various categories of assets
Variable Life Insurance
form of universal life insurance that gives the policyholder some choice in the investments made with the cash value accumulated by the policy (also called flexible-premium variable life insurance)
Values
fundamental beliefs about what is important, desirable and worthwhile
No-Load Funds
funds that allow investors to purchase shares directly at the Net Asset Value (NAV) without the addition of sales charges
Credit Report
info compiled by a credit bureau from merchants, utility companies, banks, court records, and creditors about your payment history
Disability Income Insurance
insurance that covers a portion of the income lost when you cannot work because of illness or injury
Principle of Indemnity
insurance will pay *no more* than the actual financial loss suffered
Simple Interest Loans
interest goes down and principal goes up each month
Speculative Risk
involves the potential for either gain or loss; equity investments might do either
Standard of Living
material well-being and peace of mind that individuals or groups earnestly desire and seek to attain, to maintain if attained, to preserve if threatened, and to regain if lost
Coinsurance
method by which the insured and the insurer share proportionately in the payment for a loss
Money Market Funds
money market account in a mutual fund rather than at a depository institution
Current Income
money received while you own an investment; usually received regularly as interest, rent, or dividends
Adjustable Rate Mortgage
mortgage in which the borrower's interest rate fluctuates according to some index of interest rates based on the rising or falling cost of credit in the economy -- thus transferring interest rate risk to the borrower
Private Mortgage Insurance (PMI)
mortgage insurance obtained from a private company
Load Funds
mutual funds that always charge a "_____" or sales charge upon purchase; this is the commission used to compensate brokers
Fair Credit Reporting Act
one part of the law requires that credit reports contain only accurate relevant info and allows consumers to challenge errors or omissions of info in their reports
Cash Value Insurance
pays benefits at death and includes a savings/investment element that can provide a level of benefits to the policyholder prior to the death of the insured person
Estimated Taxes
people who are self-employed or receive substantial income from an employer that is not required to practice payroll withholding are required by the IRS to estimate their tax liability and pay their taxes in advance in quarterly installments
Net Asset Value
per-share value of a mutual fund
Guaranteed Insurabilitiy (cash value life)
permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without evidence of insurability
Beneficiary
person who receives life insurance proceeds, as per the policy
Portfolio Diversification
practice of selecting a collection of different asset classes of investments (stocks, bonds, mutual funds) that are chosen not only for their potential returns but also for their dissimilar risk-return characteristics
Diversification
process of reducing risk by spreading investment money among several different investment opportunities
Residual Value (leasing)
projected value of a leased asset at the end of the lease time period
Property Insurance
protection from financial losses resulting from the damage to or destruction of your property or possessions
Liability Insurance
protection from financial losses suffered when you are held liable for others' losses
Tax Avoidance
reducing tax liability through legal techniques
Trustee-to-trustee Rollover
retirement funds go directly from the previous account's trustee to the trustee of the new account, with no direct payment to the employee occurring thereby deferring taxation and the early withdrawal penalty
Annual Percentage Yield on Savings (APY)
return on total interest received on a $100 deposit for 365-day period, given the institutions simple annual interest rate and compounding frequency
Balance Sheet
snapshot of assets, liabilities and net worth on a particular date
Policy Limits
specify the maximum dollar amounts that will be paid under the policy
Dollar-Cost Averaging
systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment
Fair Market Value
the amount a willing buyer would pay a willing seller for an item
Interest vs Dividends
the charge for the privilege of borrowing money, typically expressed as an annual percentage rate
Finance Charge
the cost of credit or the cost of borrowing; it is interest accrued on, and fees charged for some forms of credit
Share Draft Account
the credit-union version of a negotiable order of withdrawal account
Price/Earnings Ratio
the current market price of a stock divided by earnings per share over the past four quarters; used as the primary means of valuing a stock
Marginal Utility
the extra satisfaction derived from gaining one more incremental unit of a product or service
Benefit Period
the maximum period of time for which benefits will be paid under a disability income or other insurance policy
Capital Gain
the net income received from the sale of an asset above the costs incurred to purchase and sell it
Market Risk
the possibility for an investor to experience losses due to unknown factors that affect the overall performance of the financial markets
Inflation
the process by which the cost of goods and services tends to rise over time
Liquidity
the speed and ease with which an asset can be converted to cash
Counter cyclical Stock
the stock of a company whose profits are greatly influenced by changes in the economic business cycle
Marginal Tax Rate
the tax rate at which your last dollar earned is taxed, and it refers to the highest tax bracket that your taxable income puts you in
Waiting Period
the time period between the onset of a disability and the date that disability benefits begin
Opportunity Cost
the value of the next best alternative that must be forgone
Average Daily Balance
this is the sum of the outstanding balances owed on a credit card each day during the billing period divided by the number of days in period
Portability
upon termination of employment, employees with _____ benefits can keep their savings in tax-sheltered accounts, transferring retirement funds from employer's accounts directly to another account without penalty
Wills
written document in which a person tells how his or her remaining assets should be given away after death; without this the property will be distributed according to state probate law
