personal finance exam 3
what are the 3 kinds of advisors/brokers that you could use when buying a stock
1. online (by yourself) 2. discount 3. full price
what are the two kinds of disability insurance
1. own occupation (you cannot perform your OWN occupation) 2. any occupation (you cannot perform ANY occupation)
what are the 4 characteristics of a actively managed mutual fund
1. portfolio manager makes decisions 2. large/mid/small cap (size of companies in the fund) 3. considers growth vs value investing 4. socially responsible
what are the 3 types of managed care plans
1. preferred provider organization (PPO) 2. point of service plan (POS) 3. health maintenance organization (HMO)
what are the two types of insurance that you can have
1. property and casualty 2. life and health
homeowner's insurance protects against what 4 things?
1. property damage 2. theft 3. personal liability 4. personal property
what are the 3 steps to buying stock
1. select the stock 2. select an advisor/broker 3. place the trade
what are the risks from investing in a stock mutual fund? bond mutual fund?
1. stock funds have a market risk 2. bond funds have a default risk and interest rate risk
what are the 2 types of life insurance
1. term 2. cash value
when placing the trade for buying stock, you need to know what 3 things
1. ticker symbol for the stock 2. share quantity 3. order type
what are the 3 types of cash value life insurance policies
1. whole life insurance 2. universal life insurance 3. variable life insurance
Medical Payments coverage for auto insurance is coverage (A/B/C/D)
B
what are the 7 types of stock mutual funds in order from HIGH risk HIGH return to LOW risk LOW return
HIGH risk HIGH return 1. sector 2. international 3. capital appreciation 4. growth 5. growth and income 6. income 7. balanced
what are the types of bond mutual funds in order from HIGH risk HIGH return to LOW risk LOW return
HIGH risk HIGH return 1. international bonds 2. high-yield junk bonds 3. corporate bonds 4. municipal bonds 5. government bonds
what is an indemnity plan
a rare type of health care plan where your insurance pays for the cost of any service as long as it is in reason -can go wherever you want to be treated (MAX CHOICE, MAX COST)
when selecting a mutual fund, find out if it has ___ or ___ management strategies
active passive
select asset classes that (are/are not) exposed to the same risk in order to diversify efficiently
are not
a mix of asset classes in a portfolio is called
asset allocation
investors nearing retirement should _______ bonds and ____ stock allocations
add more decrease
in asset allocation, be sure to diversify across ____ and _____
asset classes countries
younger investors who can afford to should invest more ____ for _____ term goals
aggressively long
which type of stock mutual fund combines stocks and bonds into one portfolio
balanced
life insurance provides benefit to
beneficiaries at the time of death
true or false: all homeowners insurance packages have the same perils defined in the same amounts
false: different packages, different perils, different amounts
insurance provides compensation for a ______ ______ that occurs as a result of an ________ ______
financial loss uncertain event
in a bond, the insurer pays a (fixed/variable) rate of interest until maturity
fixed
advisors suggest that you invest ______% of your stocks internationally
greater than or equal to 20%
which type of stock mutual fund is oriented around growth potential stocks
growth
what is COBRA
an act that ensures continued health insurance coverage for 18 months after you lose your job
what is a independent agent and what is a benefit to using one
an agent who can offer policies form a variety of insurance companies --benefit: more options, can find you the best deal
what is a captive agent and what is a benefit to using one
an agent who represents ONE insurance company --benefit: knows the company's products very well
what is the difference between growth and value investing in a mutual fund
growth investing: investing in a highly priced stocks with the assumption that the growth will be high value investing: deciding to not buy products that are priced unfairly high
"whole life insurance" is a type of cash value life insurance policy that
has FIXED premiums and death benefits
"variable life insurance" is a type of cash value life insurance policy that
has FIXED premiums and death benefits AND cash value is invested in a stock account
"universal life insurance" is a type of cash value life insurance policy that
has FLEXIBLE premiums and death benefits
what is medicare and what must you qualify for in order to be eligible to receive it?
health insurance for people over 65 years old -social security
what is medicaid and is it administered at a national or state level
health insurance for those with little income state level
which type of health care plan requires that you go through a PCP "gatekeeper" to get to a specialist
health maintenance organization (HMO)
the interest rate risk is greater for bonds with (low/high) coupons and (short/long) term to maturity
high coupons long term
life insurance premiums are: (lower/higher) for older policy holders (lower/higher) for females (lower/higher) for smokers (lower/higher) those with medical problems
higher lower higher higher
active management strategies of a mutual fund will have (lower/ higher) return and (lower/higher) costs
higher return higher cost
adding a ____ ___ correlated asset may ____ overall return
highly negative reduce
in order to have your personal property covered by homeowner's insurance, it is important to make a
home inventory list
one way to reduce homeowner's insurance premiums is to improve _______ _______
home protection ex) sprinklers, alarm system
which type of stock mutual fund is oriented around high dividend paying stocks
income
stock ______ represent the stock market as a whole
indices
stock is offered to the public through _____ ____ ____ to raise money for the company
initial public offering (IPO)
what is long-term care insurance
insurance that covers expenses associated with the inability to perform "activities of daily living"
returns on annuities come from ___ or ____
interest or stock based returns
what is a coupon rate of a bond
interest paid on a bond
which one is more risky? U.S. stocks international stocks
international stocks
there is a (direct/inverse) relationship between interest rates and bond prices
inverse
what is dollar cost averaging
investing equal increments of money each month instead of a lump sum per year
how are investments taxed? how are dividends taxed?
investments=taxed as ordinary income dividends= taxed at dividend rates
who is a Federal agency bond issued by
issued by US government agencies
corporate bonds are also called
junk bonds
short term goals allow for (less/more) risk and (less/more) liquidity
less risk more liquidity
health insurance is a type of (property and casualty / life and health) insurance
life and health insurance
insurance that may cover care in a nursing home or at a assisted living facility is called
long term care insurance
short term bond mutual funds have (lower/higher) risk and (lower/higher) return than long term bond mutual funds
lower risk lower return
which type of private health care plans uses a NETWORK of providers (indemnity plans/ managed care plans)
managed care plans
there are (few/many) different ways to select investments
many
all stocks are subject to _____ risks
market
how could insurance be beneficial even if no benefits are paid
peace of mind of protection allows you to use your discretionary income on other things
what is an expense ratio fee when investing in a mutual fund
percentage deducted annually from the fund balance (around 1%)
what is cash value life insurance
permanent coverage that remains in effect as long as the premiums are paid
what is a ticker symbol
short symbol to represent a company
how are short term capital gains taxed? how are long term capital gains taxed?
short term: taxed as ordinary income long term: taxed at capital gains rate
which one is more risky? small company stocks large company stocks
small company stocks (can fluctuate more)
stop loss provisions:
specify the max amount that the insured will pay out of pocket
______ _____ provide benchmark comparison to portfolio performance of investments
stock indices
even investors in retirement should consider some allocation to ____
stocks
cash value grows (taxed/tax deferred) in a cash value life insurance policy
tax deferred
what is term life insurance
temporary coverage that is provided for a specified amount of time
what is an insurance deductible
the amount you pay before insurance will pay anything
what is an insurance premium
the cost of buying insurance
what is an insurance copay
the flat amount you pay per visit
insurance allows the insured person to transfer the ____ to the insurance company
the insurance company
what is an insurance benefit
the maximum reimbursement amount
coverage B of auto insurance covers damage when (you/the other driver) is at fault and covers medical care and damage costs for (yourself and your car/the other driver and their car)
the other driver yourself and your car
what is an elimination period
the period of time between eligibility and when you actually receive benefits
what are the two health care programs offered by the government
1. medicare 2. medicaid
long term care insurance premiums are (cheap/expensive)
expensive
what is a "risk"
exposure to an event that may result in a financial loss
what are the two methods to decide how much life insurance coverage you need
1. income method 2. budget method
what are two types of passive management strategies when it comes to mutual funds
1. index funds 5. life-cycle funds
what are the 6 things to remember when selecting a mutual fund
1. investment objective/strategy 2. minimum initial investment 3. past performance 4. risk 5. fees and expenses 6. tenure of manager (how long they have been there)
what are the two types of mutual fund fees
1. load / "commission fee" 2. expense ratio fee
what are the 2 purposes of life insurance
1. maintain financial support to dependents 2. leave money for heirs
what is the split policy limits for coverage A of auto insurance
(100/300/50) $100,000 per person $300,000 aggregate bodily injury $50,000 property damage
what is the budget method of calculating how much life insurance coverage you need
-based on current and expected expenses
what is health maintenance organization (HMO)
-least choice -least cost MUST HAVE REFERRAL FROM PCP TO GET TO A SPECIALIST -treatments at out of network is significantly lowered/none
what is a preferred provider organization (PPO) health insurance policy
-more choice of provider -more expensive -coverage percentage based on if you are treated at in-network or out-of-network facility
what is a common share
-most common -voting rights on who is on the board of directors
what is the income method of calculating how much life insurance coverage you need
-multiply income by 7 or 10 -simple BUT ignores personal circumstances
what are the 3 stock indices that we know
1. Dow Jones Industrial Average 2. S & P 500 3. NASDAQ
what are the 4 types of bonds
1. US treasury bonds 2. federal agency bonds 3. municipal bonds 4. corporate bonds (junk bonds)
what are the 4 risk management techniques
1. avoidance 2. reduction 3. acceptance 4. transfer
split policy limits for car insurance define 3 separate limits. (__/__/__) what are they, in order
1. bodily injury per person 2. max aggregate bodily injury 3. property damage
what are the two types of insurance agents
1. captive agent 2. independent agent
what are the two kinds of shares
1. common 2. preferred
what are the steps to filing a claim to homeowner's insurance
1. contact insurance company 2. "claim's adjuster" comes to your property to assess damage 3. present your home inventory if applicable 4. you are given a quote (you may want independent estimate if you think you are being hoed by the insurance guy)
what are the 3 risks that come with investing in bonds
1. default risk- issuer doesn't pay you back 2. interest rate risk- 3. call (prepayment) risk- issuer may repay bond early if rates fall
what are the 5 benefits of mutual funds
1. diversification 2. professional management 3. low initial investment 4. alignment with specific goal/ time horizon 5. dollar cost averaging
what 3 questions do you need to ask when considering life insurance
1. do you need it? 2. how much do you need? 3. what type do you need?
when selecting a stock to buy, you need to consider what 3 things
1. economy 2. industry 3. the company
disability insurance can be available through what 3 sources
1. employer 2. insurer 3. social security
health insurance can be offered through what 3 entities?
1. employers 2. insurance companies 3. government (medicare, medicaid)
what are the 3 things that are important to consider when investing
1. financial goals 2. risk tolerance 3. time horizon
the benefit received from social security is often ____ of your salary
2/3
stocks are only appropriate for goals that are ____ to ___ years away
3 to 5
what stocks does the DOW summarize
30 large company stocks combined (most popular and oldest index used)
what stocks does the S & P 500 summarize
500 stocks combined (MOST REPRESENTATIVE)
Liability coverage for auto insurance is coverage (A/B/C/D)
A
auto insurance coverage C is good when the other driver does not carry coverage ___
A
specify which is best: correlation coefficient of (-1/0/1) for A) the best risk-adjusted return and B) the maximum risk reduction
A) the best risk-adjusted return = 0 and B) the maximum risk reduction = -1
Uninsured/underinsured motorist coverage is coverage (A/B/C/D)
C
Collision and comprehensive coverage is coverage (A/B/C/D)
D
rank the 4 types of bonds in order from MOST SECURE (least return& least risk) to least secure (most return & most risk)
MOST SECURE----- (least return& least risk) 1. US treasury bonds 2. federal agency bonds 3. municipal bonds 4. corporate bonds LEAST SECURE--------(most return & most risk)
what is "medigap"
Medicare Supplemental Insurance to pay for medical services and items not covered by Medicare
a good way to diversify across different asset classes is to use _____ to add real estate exposure
REITS: real estate investment trusts (similar to mutual funds)
the most secure type of bond is
US treasury bond
what is a bond
a debt instrument sold by an issuer to an investor (usually sold by bank, government, or company)
what is a load/ commission fee
a fee paid on the front end or back end when investing in a mutual fund
what is a stock
a financial asset that represents ownership in a company
what is a point of service plan (POS)
a hybrid of PPO and HMO
if you expect a strong economy, (buy/sell) ______ if you expect interest rates to fall, (buy/sell) ______
buy stocks buy long term bonds
returns from a bond mutual fund comes from ___ and __
capital gains and bond funds
which premiums are more expensive (term/ cash value) life insurance
cash value
when selecting private health care plans, you are deciding between ____ and ___
choice and cost
who issues municipal bonds and what is a perk of them
cities and states --investment is exempt from federal/state income tax
when the insurer and the insured share the cost of a loss, it is called
coinsurance
younger investors should maintain a more ____ allocation for _____ term goals
conservative short
returns on a bond come from ____ and _____
coupon (interest) rates and capital gains
which auto insurance coverage type is required by law in most states
coverage A
agencies that evaluate financial stability of insurance companies are called
credit ratings agencies
coverage D of auto insurance covers:
damage to your own car
adding bonds to your asset allocation (decreases/increases) market risks and (decreases/increases) interest rate risks
decreases increases
to BEST WAY to reduce insurance premiums, increase _______
deductible
which type of insurance provides a benefit in the event that the policy holder cannot work
disability insurance
a way to manage risk when investing is
diversification
investing in a variety of asset classes is called
diversification
returns from investments come from ____ and ______
dividends capital gains (price of stock increases so you can profit if you sell it)
returns from a stock mutual fund comes from ___ and __
dividends and capital gains
term life insurance (does/ does not) build cash value
does not
before receiving disability insurance, you may be required to wait an ________ period of _______ or longer
elimination period 6 months or longer
what are credit ratings agencies
evaluate financial stability of insurance companies
health insurance covers
expenses related to medical care of the policy holder
a managed care plan has (less/more) control over where you can go and the care you receive when compared to an indemnity plan
more
foreign stocks are typically (less/more) volatile than U. S. ones
more
in private health care plans, more choice means (less/more) cost
more
rank according to riskiness: treasury bonds corporate bonds
most risky: corporate bonds least risky: treasury bonds
rank according to riskiness: money market securities stocks bonds
most risky: stocks bonds least risk: money market securities
by far the most dominant type of investment in the US is
mutual funds
are stock indices investment products
no
what is a US treasury bond
offered by U.S. treasury -backed by "full faith and credit" of the US government
one way to reduce premiums is to use (a variety of insurance companies/one insurance companies) for each type of insurance that you need
one insurance (bundle to save)
stocks represent a type of (debt/ownership) while bonds represent a type of (debt/ownership)
ownership debt
there is a (negative/positive) relationship between risk and expected return
positive (risk increase=return increase)
long-term care insurance is provided by ____ insurance companies
private
Homeowner's insurance is a type of (property and casualty / life and health) insurance
property and casualty
auto insurance is a type of (property and casualty / life and health) insurance
property and casualty
what is rental insurance
protects your possessions within a rented home, condo, or apartment
what is the role of life insurance companies
provide coverage in exchange for premiums
what is an umbrella liability coverage
provides additional personal liability coverage for auto and homeowner's insurance
what is the goal of diversification when investing
reduce portfolio volatility risk
returns on real estate come from _____ and _____
rent payments and capital gains
what is an annutiy
retirement product offered by insurance firms that grow TAX DEFERRED
cash value life insurance includes life insurance plus
savings (cash value)
what is the goal of insurance
to preserve your existing level of wealth
true or false: one way to reduce premiums is to stay with the same insurance company for a long time
true
look for ______ assets or asset classes
uncorrelated
adding an ______ asset helps reduce ____ without eliminating _____
uncorrelated risk returns
make sure that you invest in something that you ______
understand
which kind of cash value life insurance policy has flexible premiums and death benefits
universal life insurance
which kind of cash value life insurance policy invests cash value in a stock account
variable life insurance
if someone breaks their nose jumping on the trampoline on your property, is that covered by homeowner's insurance
ya: personal liability
coverage A of auto insurance covers damage when (you/the other driver) is at fault and covers the damages for (yourself and your car/the other driver and their car)
you the other driver
coverage D of auto insurance covers damage when (you/the other driver) is at fault and covers VEHICLE DAMAGE for (your car/the other car)
you your car
coverage B of auto insurance covers damage when (you/the other driver) is at fault and covers MEDICAL CARE for (yourself and your passengers/the other driver and their passengers)
you yourself and your passengers
what is a preferred share
you get paid dividends first -no voting rights tho
Coverage C of auto insurance covers
your property and health if someone else causes an accident and they cannot pay
