FINC495 Exam 1
Compounding Frequency
The number of compounding periods in one year. The greater the compounding frequency, the more often your interest is calculated and added back into your account.
Selling Away
Violation that occurs when a registered representative offers investment opportunities not sponsored by the firm
Geometric mean
Corrects for the downturn bias
Fixed Expenses
Costs that do not change from month to month
Variable Expenses
Costs that vary in amount and type, depending on the choices you make.
What are the 7 areas of a person's finances?
Current financial position, income taxes, risk score, retirement, investments, estate, and education
What are the 6 steps in financial planning?
Define client relationship, gather data, analyze data, create a plan, implement plan, monitor plan
Monthly Loan payment using TI-84
N = months of payments I = monthly compounded interest PV = amount of loan FV = 0 P/Y = 12 payments per year C/Y = 12 compounds per year SOLVE FOR PMT
After-tax Rate
Nominal Rate * (1 - tax rate)
Paralanguage
Nonlinguistic means of vocal expression: rate, pitch, tone, and so on.
RIA
Registered Investment Advisor (higher than IAR)
Weighted Average Return
Return * MV of each investment type, then take total returns divided by total MV
After-tax Rate of Return (state and federal)
S' = s * (1-t), Nominal Return * (1 - t - s') = After-tax ROR
TEY - federal and state
Taxable equivalent yield = bond yield/(1 - (FMTB + (SMTB * (1 - FMTB)))
TEY - federal only
Taxable equivalent yield = bond yield/(1 - FMTB)
Long-term debt ratio
annual gross income / total long-term debt payments (should be greater than 2.5)
"Front-End" Mortgage Qualification Ratio
annual mortgage / annual gross income (should be 28% to 30%)
"Back-End" mortgage qualification ratio
annual mortgage and credit payments / annual gross income (should be 36% to 43%)
Rental Expense Ratio
annual rent and renter's insurance premium/annual gross income (should be less than 25%)
Two statements to find net worth
cash flow and balance statement
office enviroment
comfortable, casual, professional, private
Debt to Income Ratio
consumer credit payments / after tax income (Should be less than 15%)
EAR
effective annual rate = under annual compounding, will produce the same future value at the end of one year as produced by more frequent compounding
What are the 7 codes of ethics?
integrity, objectivity, confidence, fairness, confidentiality, professionalism, and diligence
Conflict with a client
listen to them, have responses to questions, have a plan 'b', work together, and ask for their input
Dedicated expenses
loans payments, rent, bills
Current Ratio
monetary assets / current liabilities (should be less than 1)
Emergency Fund Ratio
monetary assets / monthly living expenses (should equal 3-6 months)
Savings Ratio
personal savings + employer contributions / annual gross income
Re-bating
providing an incentive to purchase a security
Credit Usage Ratio
total credit used / total credit available (should be less than 30%)
Debt Ratio
total liabilities/total assets (should be less than 40%)
Real Return
(1 + Nominal return/1 + Inflation) - 1
Holding Period Return
(ending value-beginning value) + dividends - fees/ beginning value
Time-weighted Return
(year 2 - year 1)/year 1 = do this for every year and then average the totals
Passive Income
Money earned on a regular basis with little or no effort required to maintain it.
Fiduciary Duty
A legal obligation of one party to act in the best interest of another.
APR
Annual percentage rate (AKA NOMINAL RATE)
Discretionary Expenses
Any expenses that are not considered essential to the household or business.
Earned income
Any income (wages/salary) that is generated by working
EPR
Effective periodic rate = charged by a lender or paid by a borrower each period
What are the 7 areas of financial planning?
Estate Planning, Insurance Planning, Employee Benefits, Retirement Planning, Investment Planning, Financial Statements, and Income Tax Planning
IAR
Investment Adviser Representative (lower than RIA)
FDIC ensures
The FDIC ensures that if a bank fails, you will receive up to $250,000 the market value of your account back
Discretionary Cash flow
Total income - dedicated expenses - discretionary expenses