Personal Financial Planning FINAL
What are the three most important points or "big takeaways" from last weeks presentation on investing?
1. Understand why you are investing and who it is targeted towards 2. You have to knowledgeable about investing and different funds because it is all risky 3. Knowing the difference between aggressive and conservative funds because I did not know or understand what that meant before the presentations. Information about the funds have a lot of impact on your decisions. Start invested. Don't get emotional Stay diversified
Why should you diversify your investment portfolio?
Diversifying in an investment portfolio is important so you can understand the purposes of each fund. Making the decision about whether or not you should invest in certain ones. Also lowers risk.
What was the most aggressive fund presented last week and why?
The first trust cybersecurity because it had 42 holdings and no more than 5-10% in the portfolio. There were multiple sectors which made it more aggressive instead of being conservative.
A real estate investment trust that invests only in mortgages is called an equity trust.
false
Bondholders will receive interest payments only after stockholders receive dividends.
false
Closed-ended mutual funds are guaranteed, they cannot lose value.
false
Exchange-traded mutual funds are actually closed-end mutual funds.
false
Growth funds are mutual funds designed for short-term investing.
false
If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed.
false
Interest rate risk is greater for short-term bonds than for long-term bonds.
false
Investing is considered a short-term activity that involves the buying and selling of securities.
false
Loans are available from term life insurance policies.
false
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
false
The returns on term life insurance policies receive favorable tax treatment.
false
The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.
false
Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.
true
Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
true
Closed-end mutual funds can trade at either a discount or a premium from their net asset value.
true
Common stock generally allows the stockholder an equal vote in electing the management of the corporation.
true
Convertible securities provide the fixed income features of bonds while offering the price appreciation potential of common stock.
true
Group life insurance is often provided as a fringe benefit by employers.
true
Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.
true
Investing and speculating are two entirely different activities.
true
John and Mary Smith own 500 shares of ABE stock. After the company pays a 6 percent stock dividend, John and Mary will own 530 shares of ABE stock.
true
Life insurance needs change dramatically over one's lifetime.
true
Mutual funds may be classified by the types of securities they purchase.
true
Secured credit cards require that the cardholder put up collateral in order to get the card.
true
Social security benefits are often available resources to the family after the death of a family member.
true
Term insurance is generally the most economical form of life insurance for young families.
true
The federal government regulates securities markets through the Securities and Exchange Commission.
true
The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.
true
The net asset value (NAV) per share is found by dividing the market value of the fund's securities less the fund's liabilities by the number of shares outstanding.
true
The risk-free rate of return is often measured by the return on U.S. Treasury bills.
true
To the issuing company, bonds are liabilities.
true
Treasury notes, bills, and bonds represent loans to the federal government.
true
With open-end mutual funds, investors cannot lose more than they invested.
true
Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.
true
If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?
$1,760
From the lecture last week, what are three reasons why we use credit?
1. Avoid paying cash 2. Meet financial emergency 3. Use for investing
What are the three big questions to ask before leasing a car?
1. What research did you do on the cars) you are looking for? 2. What are the best options money wise when leasing a car? 3. What are you specifically looking for in your car?
From the lecture last week, what are three things we should avoid purchasing with credit.
1. purchase non-durable goods 2. pay only minimum payments 3. make impulse purchases
What is the rule of 72 and if you are making 2% per year, approximately how many years does it take to double your money?
36
True or False: A budget is a detailed statement of what income and expenses occurred over a past period.
False
True or False: A savings account may be a useful tool in managing everyday household transactions.
False
True or False: Approximately 50 percent of Americans prepare a detailed household budget.
False
True or False: Average propensity to consume refers to how much of your money you plan to save in your financial plan.
False
True or False: FDIC covers stocks, bonds, and mutual funds purchased at banks.
False
True or False: If Lois has $2,000 in checking, $50,000 in a money market mutual fund, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be insured through FDIC for $77,000.
False
True or False: If you are married, you can legally file a single tax return.
False
In your own words, how would you describe revolving credit?
It's an open account that are given by banks and it has low interest rates. You can also write a check with revolving credit.
Explain the difference between deductions and credits on your taxes.
Tax credit deals with the taxes you owe and tax deductions will come from the money that you make.
True or False: A balance sheet is like a photograph of your financial condition, while an income and expense statement is like a motion picture.
True
True or False: A budget is a detailed financial forecast.
True
True or False: A house and land are examples of real property.
True
True or False: ATM transactions require the use of a PIN.
True
True or False: Alimony received is included in gross income for the receiver and deducted from gross income for the payer.
True
True or False: Current consumption affects future consumption.
True
True or False: One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account.
True
True or False: Personal financial planning involves translating financial goals into action plans.
True
True or False: Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.
True
True or False: Tax credits are dollar-for-dollar reductions in taxes due.
True
True or False: The Medicare portion of the FICA tax is paid on 100% of earnings.
True
True or False: The federal personal income tax is a progressive tax.
True
529 Plans are the newest type of student loans.
false
A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.
false
Always paying cash is helpful in establishing a high level of creditworthiness.
false
Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle.
false
Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
false
It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.
false
Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.
false
The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.
false
The key to creditworthiness is to keep your debt safety ratio as high as possible.
false
Using credit is the ideal way to provide for financial emergencies.
false
When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.
false
A debt safety ratio of 25% might be a signal of financial trouble ahead.
true
A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
true
An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.
true
As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
true
Being late on credit payments only 2-3 times per year may label you a "late payer" in your credit file.
true
Borrowing to pay for a college education is a legitimate use of credit.
true
Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
true
Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.
true
Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.
true
Gasoline is a variable cost of automobile ownership.
true
Less rapid depreciation is one advantage of buying a used car rather than a new car.
true
Loans against a life insurance policy do not have to be paid back.
true
Open account credit is a form of credit extended to a consumer in advance of any transaction.
true
Saving is the preferred way to provide for financial emergencies.
true
Spreading risk among a large number of people is a major principle of insurance.
true
The Veterans Administration guarantees mortgage loans given to qualified veterans.
true
The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.
true
To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the conditions of your offer.
true
Variable-rate loans are desirable if interest rates are expected to fall in the future.
true
When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.
true
When the market interest rate goes up, the rate on variable-rate loans goes up.
true
When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself.
true
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
true
True or False: Interest you earned on your savings account would be an entry on your personal balance sheet.
False
True or False: Internet-only banks typically pay lower interest rates on savings than traditional banks.
False
True or False: Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank.
False
True or False: One's marginal tax rate is typically lower than one's average tax rate.
False
True or False: Saving accounts are sometimes referred to as demand deposits.
False
True or False: Social security taxes are deducted from all wages and salaries earned in a year.
False
True or False: The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.
False
True or False: The equity in your home is the difference between the loan balance and the purchase price.
False
True or False: The income and expense statement looks forward in time, while a budget is backward looking.
False
True or False: The minimum denomination for Treasury bills is now $1,000.
False
True or False: The rate of return on cash or other liquid assets is relatively high compared to other types of investments.
False
True or False: There is no limit on the amount of social security tax withheld annually.
False
True or False: An investment must be owned over one year in order to qualify for long-term capital gains treatment.
True
True or False: Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.
True
True or False: Debit and ATM card transactions are linked to your checking account.
True
True or False: If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.
True
True or False: Jewelry, furniture, and computers are examples of personal property.q
True
True or False: The Six-Step Financial Planning Process is: 1. Define financial goals. 2. Develop financial plans and strategies to achieve goals. 3. Implement financial plans and strategies. 4. Periodically develop and implement budgets to monitor and control progress toward goals. 5. Use financial statements to evaluate results of plans and budgets, taking corrective action as required. 6. Redefine goals and revise plans and strategies as personal circumstances change.
True
True or False: The heart of sound financial planning is improved standard of living.
True
True or False: The income and expense statement looks forward in time, while a budget is backward looking.
True
True or False: Utility refers to the amount of satisfaction a person gets from buying certain items.
True
True or False: When the income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities.
True
True or False: Your personal value system will shape your attitude toward money and wealth accumulation.
True
What are three factors that may affect your house insurance cost?
Type of structure Location of Home Credit Score
You are an insured driver with USAA and you borrow your friends cars insured by Allstate. When you are driving back to your friends house to drop off the car you have a car accident. Which insurance company pays the liability in this accident?
USAA. The car insurance.
Market risk considers the possibility that the firm may fail.
false
Newly issued securities are sold to the public in the secondary market.
false
Owning common stock represents a debt investment.
false
Prices are rising in bear markets, indicating economic optimism.
false
Publicly traded issues are only available to qualified investors.
false
Purchasing power risk is of most concern during economic recession.
false
Stock dividends are taxed at long-term capital gains rates.
false
The Standard and Poor's Index is based on 30 industrial stocks.
false
The yields on municipal bonds are usually higher than the returns available from fully taxable issues.
false
When you stop making premium payments on a whole life policy, the policy's cash value is forfeited.
false
Whole life policies typically provide a high investment rate of return.
false
What is the most expensive consumer loan?
house
A diversified portfolio is less risky than putting your money into a single security.
true
A life insurance policy's cash value may be collected by terminating the policy.
true
A mutual fund prospectus is required to fully disclose all fund fees and expenses.
true
A mutual fund's price per share will increase if its underlying holdings increase in value.
true
Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price fluctuations.
true
Collateral is an item of value used to secure the principal portion of a loan.
true
Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.
true
Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.
true
One should typically name both primary and contingent beneficiaries for life insurance policies.
true
The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.
true
The difference between the market value of your home and the balance of the mortgage is your equity in the property.
true
The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
true
The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.
true
Cash and cash like investments are best used for what kind of goals?
Cash and cash like investments are best used for unexpected purchases you may come across or things you know you need to purchase soon.
What is HO-1, HO-2 and HO-4. Please give a description of each.
HO-1 is the most basic form, it is inexpensive and has structure and some personal items. HO-2 is a more broad form and has more personal items and liabilities. HO-4 is for renters with no structure and has liability on your stuff.
What are three things you learned from the class exercise and presentations on Thursday?
I wasn't in class due to softball but I found that it was more expensive to buy the home rather than rent it from the paper I got.
What is the difference between perils and hazards. Please give three examples of each.
Perils cause a loss so some examples would be a flood, earthquake, or a war. Hazards are slander, libel and defamation of character. Hazards increase chance of a peril like living next to oceans might increase chance for hurricane peril
From our class lecture, what three formats of a consumer loan:
installment loans fixed rate loans variable rate loans