UGBA 135 Midterm
Are SS benefits considered taxable income?
yes
Do you pay federal tax on interest from government bonds?
yes
Is part a of Medicare free to eligible seniors that apply?
yes
What is a sector fund?
Referred to as ETF's, except instead of tracking index, they track stocks in a specific industry, geography, etc
If you have 100k in annual earned income, how much will you have to contribute to SS and Medicare combined?
SS: 12.4% split between employer and you- 6.2% each Medicare: 2.9% split- 1.45% Total: $7,650
What is an IPO?
The first time a corporation sells stock to the public it's called an initial public offering or "IPO."
What is a stock option?
The right to buy a stock at a set price during a certain window
What is a debt to credit ratio?
The total balance on your credit cards and other loans compared to your total credit limit
True or False: As most people get older, they tend to put more amount of their money in bonds
True
True or False: Avoiding taxes is legal
True
True or False: Banks and credit unions have different requirements
True
True or False: Credit card statements have to show the amount of months it would take to pay off if you paid minimum
True
True or False: Dividends paid by corporations are taxed twice-one at Corp level and again through individual shareholders
True
True or False: Evading taxes is illegal
True
True or False: Every extra dollar is going to take more than a dollar of earnings to pay back because of payroll deductions
True
True or False: If a stock option expires, it is worthless
True
True or False: In inflation, interest rates are going up
True
True or False: Inheritance taxes are paid by the heirs
True
True or False: Merchant pays less for purchases on debit cards- no risk, they pay more on credit
True
True or False: Most workers pay more in SS and Medicare taxes than federal income taxes
True
True or False: Not wanting to buy mutual fund shares, until after they make their distribution
True
True or False: Profits from stock options are taxable, might put you into alternative minimum tax (AMT)
True
True or False: Reinvesting dividends is how you get compound growth
True
Target funds...
adjust asset allocation as you get older
What is the one federally mandated website for credit reports?
annualcreditreport.com
What's the difference between a credit card and debit card?
Credit: unsecured line of credit, have to pay on time to increase credit score, more fees, better rewards Debit: secured card, no impact on credit score, less fees
What is dollar cost averaging?
Dollar-cost averaging is investing a set amount of money in shares of a stock on a regular time schedule, regardless of the price of the shares at the time. By doing this, mathematically you will buy more shares at lower prices than at higher prices.
What is the difference between earned income and adjustable gross income?
Earned income: All the money you get AGI: taxable income income minus deductions
SALT: What is the most you can deduct regardless of marital status?
10,000
How many credit scores does a person usually have?
3
According to the Nightingale Survey (what percent is financially independent)?
5%
If ur healthy, when should u claim SS to maximize benefits?
70
If you or a family member is healthy, what age should they wait to collect social security?
70
What does it mean if ur financial advisor is a fiduciary?
A person or legal entity such as a bank or brokerage firm that has the power and responsibility acting for another in situations requiring trust, good faith, and honesty/
What is the bid, ask, market to buy or sell, and limit order to buy or sell in buying and selling stocks
Bid: highest price buyer will pay at that time Ask: lowest price the seller is willing to sell Market order: best available price at moment in time for an immediate purchase or sale of stock Limit order: specific price you set at which you are willing to either buy or sell stock, does not limit losses
What are municipal bonds?
Bonds issued by state and local government agencies are called municipal bonds or "muni" bonds. They are secured by assets, taxes, revenue, or assessments. Many, such as school bonds, need to be approved by voters in advance. For the bondholder, interest from municipal bonds issued by state and local governments is free from federal income tax. In some states, if you reside in the state of issue, the interest may also be free from state income tax.
What is the best way to establish good credit?
Borrow money and pay it back on time
What is a sole proprietorship?
Business owned by one person
What is PE ratio?
Comparing the market price of a share to its earnings per share is the price/earnings ratio, tells you what the market is currently paying for each dollar of earnings
What is the difference between qualified dividends vs non qualified dividends?
Qualified: currently taxed at a max rate of 20% for singles with taxable income in excess of $425,800 or couples above $479,000 if stock held for at least 61 days Unqualified: less than 61 days, dividends from real estate investment trusts and ordinary dividends, taxed as ordinary income
Most important factor in determining credit score
Record of paying bills on time over time
Are those in a partnership are they liable for federal income taxes even though they didn't get any tax?
no
Are your contributions to SS and Medicare tax deductible to you?
no
Does a proprietor have limited liability?
no
What is PEG ratio?
"PEG rate" is a tool frequently used to try to decide if a stock is in a "buy" range or a "sell" range. It compares how much investors are currently willing to pay for each dollar of earnings, to the expected growth rate of future earnings. Specifically, the PEG rate compares the current price/earnings ratio (P/E) to the growth rate of earnings (G) to determine whether the company's anticipated growth rate is being reflected in the current price.
Things to do if you are a victim of credit card theft
1. Immediately contact 3 major credit bureaus and put fraud alert on your account 2. Close all accounts as soon as possible 3. File a police report 4. Notify credit card company or bank
Discipline- know all disciplines
1. NEVER borrow money to buy stocks or invest in the stock market 2. Market timing. There is never a right time or wrong time to invest in stocks. 3. It is best to invest in stocks with money you will not need for five years 4. Identify trends 5. Dollar-cost averaging 6. Diversify 7. Stage and stagger your purchases 8. Allocation of assets or rebalancing 9. Hold on to a stock for 6-18 months 10. Do your homework 11. Keep it simple and stay informed.
If ur carrying a credit card balance, how often is interest calculated?
APR is an annual rate, but is used to calculate interest on a monthly basis.
What is the time value of money?
Always better to get a dollar today than tomorrow so you can put it to work right away
When do you need to start paying quarterly taxes to the government (IRS)?
April 15, June 15, Sept 15, Jan 15
Each time you receive a paycheck, what is the goal percentage of what you wanna keep and save?
Begin by saving 5% to 10% of your earned income in your early years. Move that, as soon as possible (ASAP), up to 15%, including amounts contributed by your employer, which you should always take advantage of.
What is a closed end fund?
Closed-end funds are pooled investment portfolios which raise money by issuing and selling a set number of shares in an initial public offering. Thereafter, the shares are listed on an exchange and publicly traded. The NAV is published daily even though the shares may actually trade at a higher or lower price, based upon supply and demand.
What is compound interest?
Compound interest occurs when interest is paid on both the principal and accumulated interest.
What is the biggest reason to start saving early?
Compounding interest, earning interest on interest, more time=compounding interest
What is the difference between earned and unearned income?
Earned: money you work for- wage, salary, bonus, tips Unearned: taxable interest, ordinary and qualified dividends, business profits or losses, capital gain or losses, investment, interest on savings accounts, stocks, benefits
What is a partnership?
Enterprise jointly owned by 2 or more entities, Owned by 2 or more entities, death of partner- continue business, limited liability to the amount of their investment, doesn't pay federal income tax
What is the rule of 72?
Estimate how long it takes a sum of money to double, 72/interest rate
What is a wash sale?
For taxes, you cannot declare a loss on a security if you purchase the identical security within 30 days before or after the sale, prevents people from dodging taxes by buying and selling stocks
Meaning of frugal
Frugal means not spending freely or unnecessarily, but considering quality, value, needs and benefits along with price.
What's an emergency fund?
Fund to cover living expenses in the event of illness, job loss, or another emergency, should cover 3 months
What is a bond default?
If interest is not paid according to bond agreement or the issuer is unable to repay the principal on the maturity date Bondholders are entitled to those assets in satisfaction of the debt
What is a bond?
Interest bearing security obligating the issuer or the bond to pay the bondholder a specified amount of interest for a specified period of time, then repay the bondholder the face amount of the bond Debts that must be repaid
What is a go to rate
Interest rate charged on a credit card after the introductory or teaser period ends
What is a corporation?
Its own entity, taxed twice
Why are limited partners called limited partners?
Limited liability, can only lose their investment
What is the general partner responsible for?
Manages and runs partnership: unlimited liability - if dies, company goes to beneficiary
What is the market cap of a company?
Market cap is the total value investors are placing on the company at a moment in time. It is calculated by multiplying the market price of a single share of stock by the total number of shares outstanding.
High income earnings pay more for Medicare, do they also get more benefits because they pay more?
No
If you buy a bond, are they considered the highest rated?
No
What is a prepaid card?
Offered by banks and nonbanks, not linked to bank account, include activation fees, inactivity fees, fees to load money onto the card, shortage fees
What is a notary public?
Official of integrity appointed by state government to serve the public as an impartial witness, authenticates signatures
What is a good dividend?
One that is higher than interest on a 10 year treasury bond
What is an exchange traded fund (ETF)?
Securities that track an index, but trade like a stock, group of stocks in a certain category, industry, or area
What are the capital gains vs long term capital gains?
Short term capital gains: for assets owned 12 months or less, profit added to income and taxed at max of 37% Long term capital gains: for assets owned more than 12 months, profit is subject to max 20% for singles(excess $425.8k), for married above $479k.
What is the difference between standard deduction and itemized deduction on tax return?
Standard Deduction: Dollar amount you subtract from income before it is taxed Itemized Deduction: medical expenses, state and local taxes, home mortgage interest, interest on a home equity loan, charitable deductions, casualty and theft loss deduction
What is a K-1 form?
States the info needed to be filed with the partner's individual tax return, reports each shareholder's share of income, losses, deductions, and credits
What is a stock option?
Stock options give one a right, but not an obligation, to buy a stock at a set price within a specified period of time. Options are designed to attract, retain and reward employees, and make them stakeholders, incentivized as part owners of the enterprise. If the stock increases in price, the options have value and are in the money. If the stock decreases in price, they have no value and are out of the money. If the options are not exercised by the expiration date, they terminate.
What is main thing that growth investors are looking for?
Strong companies to grow their sales and earnings by 15% a year
What is worth more tax deductions or tax credits?
Tax credits are worth more than tax deductions
What is the alternative minimum tax?
The AMT was designed to impose taxes on high-income people who were paying little or no income tax by taking advantage of tax loopholes. The AMT ignores certain tax deductions otherwise allowed individuals in the regular tax code, and applies special tax rates.
What don't the FDIC cover?
The FDIC does not insure or guarantee MMFs, but the government does have rules regarding their allowed investments.
What do value investors look for in a company?
This is an investor looking for stocks which have stumbled and whose shares are at "bargain" prices. In down markets there may be many stocks that fall into this category. Sometimes stocks have been beaten down due to temporary problems you think will be fixed. These are broken stocks, not broken companies.
What is the main thing that a dividend investor is looking for?
This is an investor wanting income more than growth. The focus is on stocks that pay above average dividends. As a starting point, a "good" dividend is one that provides a current yield greater than the interest rate on a 10-year treasury bond. Look for companies with a history of raising dividends each year.
What is current yield?
This is the annual interest payment divided by the market price of the bond. The coupon (or interest paid) stays the same, but changes in the market price of the bond will change the current yield either up or down. If you purchase a bond you will want to know the current yield.
What is coupon yield?
This is the fixed percentage rate of interest based upon the par value of the bond. The coupon rate does not vary with the price of the bond. A bond with a coupon rate of 4%, pays $40 a year to the owner. That does not change.
What is yield to maturity?
This tells you how much you will receive in the future if you hold the bond to maturity. It is the sum of all cash flows from both coupon payments and repayment of the face value ($1,000). If the bond was purchased at a discount (less than face value), the yield to maturity will be higher than the coupon. If the bond was purchased for a premium (more than face value) the yield to maturity will be lower than the coupon. The yield to maturity is expressed as an annual percentage rate without accounting for any taxes to be paid by the holder of the bond.
What is a millionaire?
Those who are financially independent, living the life they want to lead and are able to take care of themselves without financial help from government sources
What is the net asset value (NAV) of a mutual fund?
Total value of the fund's holding divided by the number of fund's shares outstanding at that time
True or False: Estate taxes are paid by estate
True
True or False: Stock investors tends to look ahead 6-18 months
True
True or False: We work on percentage increases- low price stocks don't make any more money than high price
True
True or False: When we have inflation, the cost of things go up. Typically the interest rates on savings accounts go up.
True
True or False: When you're paying off debt, you always want to pay off the debt with the highest interest rate.
True
True or False: Whether investors are going to pay more in the future is the prospect of higher earnings in the future
True
True or False: You want to review your bank and credit card statements every month.
True
True or False: If you can cancel an inactive credit card, you may be able to increase credit score
True - but it can also decrease your credit score
When is the best time to establish credit?
When you don't need it
Does a sole proprietor file a separate tax return for the business?
Yes, 1040 form
Is there under Medicare and surtax for high income earners ?
Yes, for part A there is over a 0.9% increase for people earning over $200k for singles and $250k for couples
Are stock options free to you when they are granted, do you pay anything for them?
Yes, if you exercise them they are taxable
