FHCE 2100 exam 3

dental and eye insurance

Eye exams, glasses, contact lenses, dental work and dentures Expensive unless provided with an employer plan

medicare

Government- sponsored health care plans - medical benefits to disabled, and those 65 and holder - cost is covered through social security tax - parts A and B

budget

Is a tool to help one accomplish short term, intermediate, and long term goals Based on previous and forecasted cash flows (income/expenses) Estimate: income and expenditures

agency bonds

Pass through certificates (mortgage backed securities)

balance sheet

Set up to show what you own on one side (your assets) and how much you pay for them on the other (debt and net worth) - assets, liabilities to calculate net worth

savings bonds (US treasury)

US Series EE Bonds and I Bonds

3, 6, or 12 months

US Treasury bills mature in ___

10- 30 years

US treasury bonds mature in ____

automobile loans

a consumer loan that is secured with an _____ - (if you default on loan = take car away) Has a lower interest rate than an unsecured loan (like a student loan)

indenture

a document that outlines the terms of loan agreement

co-payment

a fee that you pay at the doctor/hospital for services rendered

tangible asset

a physical asset, something you can use, feel, touch = ex. jewelry

business risk

a risk associated with poor company management or product acceptance in the marketplace, ex. Toys R us

premiums

additional returns demanded by investors for taking on additional risk - usually happens when a merger occurs

cobra rights

allows an employee to remain on employers insurance if the employee worked for an employer who has more than 2- workers - stay on insurance, but pay full costs - can stay for 18 months- used between jobs

call provision

allows the issuer to repurchase the bonds before the maturity date- can call to tell you to bring the bond back

proxy

an agreement allowing a designated party to "vote your shares"

variable expenses

an expenditure - expense you can control- eg. food, entertainment, clothing - where you can make budget cuts

fixed expenses

an expenditure - expenses you don't directly control - ex. mortgage, rent, cable TV - after you decide to take expense, don't get to control if you pay

claim on income

as a shareholder you have the right to any earnings of the company after all other obligations are met

real estate

as an ownership investment - you generate a return through rent or capital appreciation

personal property

asset - tangible assets that represent your lifestyle, reported as fair market value but normally depreciate in value- boats, furniture, electronics, clothing, jewelry

investment assets

assets invested for the future- ex. stocks, bonds, mutual funds, cash value life insurance

net worth

assets- liabilities = ___, measure of wealth - equity in owned assets - what remains after selling your owned assets and paying off all your liabilities

35$

average late fee and over the limit fee on credit card

revolving balance

balance owned if you carry a balance from month to month on your credit card, then you have a ______ account - compound interest is calculated on ____ balances

US Series EE Bonds

bonds purchase price is one half of the face/par- value, ranging from 50-10,000$ - rate of return varies with the market rate - have a guaranteed minimum interest rate based on treasury securities - high level of liquidity, but cashing in before maturity may reduce yield- not going to get as much if you don't wait

zero- coupon bonds

bonds issued by corporations, municipalities, and the treasury - do not pay interest each year - are sold at a discount from face value

pass through certificates aka mortgage backed securities

bonds issued by government agencies, authorized by congress - low risk, with interest rares slightly higher than treasury issues - minimum denomination of $25,000 which matures from 1- 40 years

municipal bonds (munis)

bonds issued to fund public projects - interest earnings are federal tax exempt - can be exempt from state taxes if you live in the state where bonds are issued - not very liquid due to lack of secondary market

short-term goals

can be accomplished in one year

monetary assets

cash or other assets that can be easily liquidated- ex. . Cash, checking accounts, savings accounts,certificates of deposit, money market accounts

the credit bureau

collects and reports information from creditors, public court records and the consumer

claim on assets

common shareholders can claim their assets only after debtors and preferred stockholders have been paid- get leftovers

stock repurchases

companies buying back their own stock- signs that the company is going private again

liquidity risk premium

compensation for a bond that can not be quickly converted into cash at a fair market value

default risk premium (DRP)

compensation for the possibility t the issuer may not pay the interest or repay the principal

maturity risk premium

compensation on longer- term bonds for value fluctuations in response to interest rate changes

insolvent

condition in which you owe more money than your assets are worth - when total liabilities exceed your total asset - net worth = 0 or negative

single payment (balloon) loan

consumer loan - principal and finance charge are one payment

price per share

cost of one share/split number

hospital insurance

covers hospitalization expenses including room, feed, nursing fees and drug fees

major medical expense insurance

covers medical costs beyond the basic plan - normally requires co-payments and deductible payments - stop-loss provision and lifetime cap

dread disease and accident insurance

covers only specific illness or accidents - provides a set amount of dollar reimbursement

surgical insurance

covers only the direct costs of surgery including the surgeons fees and equipment fees

physicians expense insurance

covers physicians fees including office, lab, and x-ray fees

open credit

credit that you can use to repay at your pace as long as you pay the requirement minimum monthly payment- credit card or department store credit cards- not going to take away items bought on credit card if not payed

closed credit

credit that you must repay in fixed payments- car loans, mortgages - tied to something they can take away if you don'y pay

resource clause

defines the lender's ability to collect any outstanding balances - repossession of property - wage attachments and garnishments - limits on other property (Second collateral)

living will

designate in advance what you want your treatments in emergencies or at the end of life

health care proxy

designate who can make healthcare decisions on your behalf

ratio

determine whether or not you have enough monetary asses: to pay for unexpected large expenses or to tide you over during periods of reduced of eliminated earnings

credit score

determines if you qualify for credit and interest rate offered

volunteer for Peace Corps, VISTA, teaching in a school that is low income

dismissal or reduction of student loans under these conditions:

par value

face value- the amount returned to the holder at maturity of the bond

annual income, length of time at current residence and current job, number of bank accounts, number of credit cards, credit history

factors that determine creditworthiness

Dividend Reinvestment Plans- DRIPs

getting money back from the company after investment, and instead of getting a check, goes directly into buying more stock in the company

power of attorny

gives person absolute power to manage your affairs

freddie mac

government agency bond issued by the Federal Home Loan Mortgage Corporation

fannie mae

government agency bond issued by the Federal National Mortgage Association

ginnie mae

government agency bond issued by the Government National Mortgage Association

20-25 days

grace period on credit card, doesn't apply if you carry a balance

closed- end investment companies or mutual funds

have a limited number of shares - investment company - sell only the initial offering, subsequent trades are done in a secondary market, similar to the common stock market - purchasing and selling price is determined by supply and demand

medicaid

health care for low income, blind, or aged persons - payments may be used to offset their premiums, deductibles and co-payment incurred with medicaid

high deductible plan

high deductible that you must meet before insurance will pay - offset by smaller monthly premiums= benefit - amount must be at last 1,000 avg = 5000 - healthy people insurance

provider sponsored network

identifies a group of cooperating physicians and hospitals who have banded together to offer a health insurance contract - rural areas - members coordinate and deliver health care and manage insurance plan financially - Contract with outsiders for additional skills-specialized docs

limited liability

if the company goes broke, you can only lose the amount of money you invested

savings ratio (equation)

income available for saving/income available for living expenses - cash surplus/income after taxes

savings ratio

income available for saving/income available for living expenses - cash surplus/income after taxes - ratio tells you what proportion of your after tax income is being saved

annual percentage rate (APR)

interest rate paid over the life of the loan

teaser rate

introductory rates used to attract new customers, some as low at 0.0%

mutual funds

investment company that pools money from investors to buy stocks, bonds, and other investments - investors own a share of the fund proportionate to the amount of the investment - money collected is then invested in capital market instruments aka- stocks

savings accounts

investment- loan institutions money

bonds

investment- loans where your rate of return is predetermined - lending money to government, municipality, corporation, federal agency or other entity known as the issuer. -The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it "matures," or comes due. - long term hold strategy

retirement plans- asset

investments by you or employer to save for retirement- IRAs, 401K,, 403B, Keogh, etc.

defensive stocks

issued by companies whose earnings tend to move inversely to the broader economy and may actually increase during economic downturns Ex- manufacturers or sellers or parts/repairs- family dollar

real estate asset

land, or dwelling- represents more of your savings, and normally appreciates in value- car, house, jewelry, vacation home

long-term liabilities

liabilities that extend beyond 1 year- home mortgage and auto loans

stop-loss provision

limits the total out of pocket expenses incurred by the insured to a specific dollar amount- then don't have to pay anymore

secured loan

loan secured by collateral- can take away object- ex. car, home

unsecured loan

loan that does not have collateral - ex. student loans- can't take away

2 to 6 years

maturity length of an automobile loan

$25,000

minimum denomination of pass through certificates/mortgage backed securities/ agency bonds

months living expenses covered ratio (equation)

monetary assets/(annual living expenses/12)

months living expenses covered ratio

monetary assets/(annual living expenses/12) - rule of thumb- 3 to 6 months of expenses should be able to cover

current ratio (equation)

monetary assets/current liabilities

sinking fund

money set aside annually to pay off the bonds at maturity

basic indemnity plan

more limited type of plan where you are insured for only a part of the cost care received - the insured receives the benefit amount that is usually fixed without regard to actual expense ex. Insurance gives a set cash amount of $150 for a day in the hospital- way more

monthly

most credit cards compound interest on a _____ basis

current liabilities

must be paid off within the next year- personal loans, orthodontics bills

Equifax Credit Information Services Experian Transunion

national credit reporting bureaus

individual insurance

nongroup coverage plan - provides an expensive, tailor-made policy to the purchaser

new share number

number of shares times split number- 1,000 X 5

installment loan (amortized)

one payment but one part of payment goes to the principal and part goes to finance change- more than one payment, don't pay off all at once - consumer loan

ownership investment

own a share of the company - stocks - real estate

managed health care

pays for a provides health care services for policyholders - limits doc choices - monthly premium and co-payment - HMOS - PPOs

debt ratio

percentage

Direct Investment Plans

plans with which individual companies allow shareholders to purchase stocks directly from the company for a minimal cost

long term care insurance

provides a daily dollar benefit for the costs of long-term care Expensive Depends on: degree of impairment, Level of coverage expected, Person's age , Benefit amount (how much did they put away), Benefit period (how long will it last), Waiting period.. Onset of needed care and when policy will begin

disbaility insurance

provides income in the event of a long-term illness or injury

fee for service or traditional indemnity plans

provides protection against direct medical expenses- based on concept of payment after the expense occurs - provides greatest choice- Dr - co-payment or deductible - Relatively expensive and require more paperwork- getting to make choices

investing

putting your money into an asset that generates a return- ex- - stocks, bonds, mutual funds, or real estate

speculating

putting your money into an asset that the future value, or return relies on supply and demand ex- collectors items, gold, baseball cards r derivative securities- relies on someone else wanting what you want- what value others see in it

credit

receiving cash, goods, or services with an obligation to pay later

diversifcation

refers to the number of different types of securities owned - reduces risks - investors demand a return for taking on additional systematic risks

acceleration clause

requires the entire loan to be paid in full if you miss just one payment - are standard on most loans - normally not invoked if you make a good faith effort to pay

insurance agreement claure

requires you to purchase life insurance that will pay off your own after your death - normally benefits only the lender- not the family - increases your total total loan cost

interest rate risk

risk associated with fluctuations in security prices due to the changes in the market interest rate - a rise in the market interest rate reduces the value of your lower rate security - impossible to eliminate

liquidity risk

risk associated with not being able to liquidate a security quickly and cost effectively - Collectibles and real estate have high _____ risk

unsystematic risk

risk associated with one particular investment and can be reduced through diversification

financial risk

risk associated with the company's use of debt - if the company defaults- bond holders are paid 1st (guaranteed return) , then preferred stock holder, last common stock holder

market risk

risk associated with the swings in the overall market - can be caused by the economy, supply and demand, and interest rates ex- bust buy, dollar general when the economy is down

inflation risk

risk that rising prices will erode purchasing power - closely linked to interest rate risk because of the effect of inflation on interest rates - almost impossible to eliminate

call risk

risks that a callable security may be taken back before maturity - if a bond is called, the investor normally receives the face value plus one year of interest payment Callable bonds- people selling the bonds say that bond needs to be turned back in- happens if interest rates changes- interest rates too high cash it out and can buy it back for a lower interest rates Only applies to callable bonds

political and regulatory risk

risks that results from unanticipated changes in the tax or legal environment - Can be very difficult to predict - Ex- gun laws and sale with democrat in white house- gun sales/prices increased

real property liens

secured corporate debts are secured by collateral of ____ - CORPORATE BONDS

future needs

setting aside a portion of current income spending in savings or investments- retirement, homes

stock

share in the ownership for a company - represents a claim on the company's assets and earnings

liquidity ratios

shows how long you could continue to pay current debts with existing assets in the event of income loss - current ratio - months living expenses covered ratio

income/expense statement

shows what you earned, how you spent your money, and how much you were left with- past year

evaluate your financial health

stage 1 in personal financial planning process - evaluate current situation, income, spending and wealth - asses your whole financial picture - balance sheets, income statements, budget

define your financial goals

stage 2 in personal financial planning process - Specifically define and write down your financial goals to reflect your financial and life situation Attach a cost to each goal Set a date for when the money is needed to accomplish the goal Goals: important in a financial plan!

approaching retirement- the golden years

stage 2 of the life cycle of financial planning - realize intermediate- term goals - re-evaluate the plan to match current goals - age 55-64

develop a plan of action

stage 3 in personal financial planning process -make sure it has flexibly, liquidity, and protection -minimization of your taxes

retirement

stage 3 of life cycle financial planning - rude investment risk - concentrate on preservation rather than growth of assets - plan for transfer of your estate age 65=

cash basis

statement based entirely on actual cash flow

speculative stock

stock issues by higher risks companies and generally sold on the OTC market - Some are associated with astronomical gains and losses - Ex- companies with new innovations or technology stocks

growth stocks

stocks issued by companies who sales and earnings growth have outpaced the market - often newly formed. smaller companies - ex. microsoft

cyclical stocks

stocks issued by companies whose earnings tend to follow the economy ex- ford and general motors

income stocks

stocks issued by mature firms that normally pays high dividends, usually have low growth rates Ex. utility companies

blue chip stock

stocks issues by large, well- known companies - normally have sound financial histories, and have solid divided and growth records ex- GE, Texaco, Proctor and Gamble

part B of medicare

supplemental insurance for out-patient care, doctors office visits, other services -Monthly premium of $105 (of more if wealthier) -Must pay a portion of one's costs, roughly $147/year -Federal government pays 75%, elderly person pays 25% of costs

intermediate term goals

take 1- 10 years to accomplish

long-term goals

take more than 10 years to achieve

automobiles etc.

tangible assets that must be inspected and licensed- reported a fair market value but normally depreciate in value

average propensity to consume

the % of each dollar or income on average, that a person spends for current needs rather than savings

taxes and living expenses

the 2 major expenditure categories

personal income statement

the Financial motion pictureL of the PAST - trace money, tell where your money comes from and where it goes - cash basis

flexibility

the ability for your financial plan to change as your situations or goals change

stock splits

the company cuts the stock price and you get more shares, but retain the same total investment- company shock is getting too expensive- cuts the price in half = - 2:1- 1 share = 1,000- split 2 shares at 50= now have 2 shares for 1,000 - In a 2:1 split—100 shares selling for $100 will split into 200 shares at $50 each - 5:1, 400$ each, total 40000$, 1,000 shares

inflation risk premium (IRP)

the compensation for the anticipated inflation over the life of an investment

insolvent

the condition in which you owe more money than your assets are worth- sold everything and still can't pay off debt

the early years (a time of wealth and accumulation)

the first stage of the life cycle of financial planning - develop your savings plan - set your initial goals of all lengths - est. your long-range investment strategy - last through age 54

real rate

the inflation adjusted rate of return

health maintenance organizations (HMOs)

the most popular form of insurance - a system of docs and hospitals in a group for a flat fee - provide health services including preventive maintenance- goal to catch things early and prevent high cost treatment - Assigned as primary care physician who decides your care - Programs typically have copays where you pay a specific amount of out of pocket expenses

1. evaluate financial health 2. define financial goals 3. develop a plan of action 4. implement your plan 5. review your progress, re-evaluate and revise your plan

the personal financial planning process

Co-insurance

the portion of your bill that insurance will pay in conjunction with you paying portion of the bill - 80/20

deductible

the portion of your health care bill that you must pay before insurance will pay your bill - requires participant to pay an additional portion of health expense annually before receiving reimbursement

nominal (quoted) rate

the rate of return without adjusting for inflation

liquidity

the relative ease and speed with which you can convert non-cash assets into assets

systematic risk

the risk associated with all securities and can not be reduced through diversification ex- interest rate risk, inflation, recession

variable rate

tied to other national rates

lifetime cap

total amount the insurance will pay over the life of a policy- gone with affordable care act

long term debt coverage ratio (equation)

total income available for living expenses/total long term debt payment

long term debt coverage ratio

total income available for living expenses/total long term debt payment - tells you how many times you could make your debt payments with your current annual income - not a percentage

debt ration (equation)

total liabilities (debt)/total assets

debt ratio

total liabilities (debt)/total assets - tells you whether you could pay off all liabilities if you liquidated all your assets

total assets

total liabilities + net worth

$1,000

treasury bonds are sold in denominations of ____

debt limit ratio

what % of your take home pay or income is taken by non-mortgage debt payment = total monthly non-mortgage debt payments/total monthly take home pay

liabilities

what you owe

stock spin out

where a company splits off sections of itself as a separate business - division of a comapny becomes independent business - the company breaking away takes assets, intellectual property, technology, and/or existing products from the parent organization. - Many times the management team of the new company are from the same parent organization. Often, a ___ offers the opportunity for a division to be backed by the company but not be affected by the parent company's image or history

Expenditures

where your money goes

lower interest rates

why are bonds usually called?

stocks

you become part owner in the corporation and receive a portion of the profits as dividends

voting rights

you can the right to vote as a shareholder, however, this right is normally executed through proxy

liquidity

your ability to convert non-cash assets into cash with relative ease and speed

protection

your ability to meet the unexpected large expense without destroying your financial plan

minimization of taxes

your ability to pay as little possible to Uncle Sam

36%

-debt including mortgage should be less than ___% of your gross income- debt to income ratio

current ratio

-monetary assets/current liabilities - shows whether you have enough liquid assets to cover expenses currently due - percentage

62%

2012 what % of bankruptcies were due to medical expenses?

Individual practice association plans- UGA Group practice plans point-of -service plans

3 types of HMOs

equity, mortgage, hybrid

3 types of real estate investment trusts

collateral

5 C's of credit - assets or property secured to obtain credit (taken away b/c debt) - the creditor holds the title to the assets until repaid - if you default, the assets is sold to repay debt - Typically secured assets include: automobiles, home, boats

conditions

5 C's of credit - extraneous facctors - impact the current economic environment may have on your ability to repay debt- ex. unemployment rate, discount rate, inflation rate

capital

5 C's of credit - size of financial holdings - investments - savings - checking - income - assets

capacity

5 C's on credit - ability to repay debt - currnet level of income/source of income - current level of borrowing- how many lines of credit? -level of non-obligated income -debt including mortgage should be less than 36% of your gross income- debt to income ratio

character, capacity, capital, collateral, conditions

5 C's on credit- getting a credit card

character

5 C's- sense of responsibility toward debt repayment - proven debt repayment history, job stability, home ownership/rental length, low debt load

par value

(bonds) - the amount you receive when a bond matures- different from face value (what you buy it for)

coupon interest rate

(bonds) - the interest paid annually on a bond as a % of par value - indicates the % of the face value (par value) that will be paid annually to the holder in the form of interest - $1,000 bond, 6% interest- 100 x .06= 60$ annually

workers compensation

- Government- sponsored health care plans - insurance to workers injured on the job -payment for work- related accidents and illness - coverage is determined by state law and varies by state

deficiency payment clause

- Requires any amount in excess to be paid if the collateral value does not satisfy the loan. - Also requires payment of any outstanding charges incurred by the lender associated with the disposal of the collateral

treasury bonds (US Treasury)

- US Treasury - bills, notes and bonds - treasury inflation- indexed bonds -bills matured in 3, 6, or 12 months - bonds mature in 10 to 30- years - all sold in denominations of $1,00

preferred provider organizations (PPOs)

- a cross between fee-for-service plans and HMO plans - a group of doctors who work at a reduced cost - additional fees if use a non-member doctor or center - you pay for the care when your receive it rather than in advance - the discount is passed along with policyholders in the form of reductions or eliminations of deductibles and/or co-payments

home equity loans (HELOC)

- basically second mortgages - use equity in your home to secure your loan - normally allow you to borrow up to 80% of your equity

corporate bonds

- corporations borrow $ by issuing bonds - secured corporate debts are secured by collateral of real property liens - unsecured corporate debts are not secured by collateral, and pay a higher return

The Financial Literacy and Education Commission

- est. under the air and Accurate Credit Transactions Act of 2003. - tasked to develop a national financial education website- mymoney.gov and national strategy on financial education - It is chaired by the Secretary of the Treasury and the vice chair is the Director of the Consumer Financial Protection Bureau.

flex accounts aka medical reimbursements (flexible spending account)

- funded with pre-tax dollars - pay unreimbursed medical expenses -"use it or lose it" - save money for getting braces

lending investments

- give money, getting paid back in interest - savings accounts - bonds

open- end investment companies or mutual funds

- have an unlimited number of shares - buy and sell shares directly to investors without a secondary market - purchase and selling price is determined by the net asset value of the fund- buy a share of the mutual fund - investment company

medicare advantage

- healthcare plans that offer medicare benefits through private health insurance plans such as HMOs and PPOs - medicare pays ___ a lump sum to provide A and B coverage - offer financial incentive for better plan- pay more - 25% of elderly use some form of this - not relying on medicare, getting better policy

payday loans

- high fees charged - short-term loan of 1-2 weeks - those with jobs and checking accounts and students are typical users - check "held" by payday lender

basic health care insurance

- hospital, surgical and physicians expense insurance

part A of medicare

- hospitalization portion; requires no premium -Most people don't pay a monthly premium if they or a spouse has 40 or more quarters (10 years) of qualifying employment- to start getting money/kickback

the cash advance (Credit card)

- interest begins immediately and may be at a higher rate than for purchases - usually a ____ fee of 2-4% of the amount advanced - Some cards require payments of the purchase balance before payment of the ___balance

unit investment trusts

- investment company - fixed pool of securities, normally municipal bonds (attached to project) - are passive investment to operate on a buy- and hold strategy - normally require $1,000 minimum investment - long time horizon recommended

real estate investment trusts (REITS)

- investment company - have 3 type- equity, mortgage, hybrid - lack the liquidity of most mutual funds, but more liquidity than direct real estate investments - offer diversification independent of the stock market

student loans

- loans with low federally subsidized interest rates used for higher education - Are tax- advantaged under the 1997 taxpayer relief act

health savings accounts

- tax deductible savings account into which individuals and employers deposit tax sheltered funds to use to pay medical bills and out of pocket expenses- money put in isnt taxed