FINC495 Exam 1

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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


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