Unit 2 Personal Finance Exam

interest earning checking accounts

NOW accounts, usually require a minimum balance. If the account balance goes below this amount, you not earn interest and will likely incur a service charge

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected

passive activity

a business or trade in which the investor does not materially participate

second mortgage

a cash advance based on the paid-up value of a home; also called a home equity loan

automatic teller machine (ATM)

a computer terminal used to conduct baking transactions; also called a cash machine

corporate bond

a corporation's written pledge to repay a specified amount of money, along with interest

dividend

a distribution of money, stock, or other property that a corporation pays to stock holders

deed

a document that transfers ownership of property from one party to another

Truth in Lending Law

a federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount

Fair Debt Collection Practices Act (FDCPA)

a federal law, enacted in 1978, that regulates debt collection activities

mutual savings bank

a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans

commercial bank

a financial institution that offers a full range of financial services to individuals, businesses, and government agencies

savings and loan associations

a financial institution that traditionally specialized in savings accounts and mortgage loans

real estate investment trust (REIT)

a firm that pools investor funds and invests them in real estate or uses them to make construction or mortgage loans

conventional mortgage

a fixed-rate, fixed-payment home loan with equal payments over 10,15,20,25, or 30 years

cooperative housing

a form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units

speculative investment

a high-risk investment made in the hope of earning a relatively large profit in a short time

adjustable-rate mortgage (ARM)

a home loan with an interest rate that can change during the mortgage term due to change in market interest rates

manufactured homes

a housing unit that is fully or partially assembled in a factory before being moved to the living site

trust

a legal agreement that provides for the management and control of assets by one party for the benefit of another

lease

a legal document that defines the conditions of a rental agreement

bankruptcy

a legal procedure for dealing with debt problems of individuals

rate cap

a limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage

payment cap

a limit on the payment increases for an adjustable-rate mortgage

open-end credit

a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

home equity loan

a loan based on the current market value of a home less the amount still owed on the mortgage

reverse mortgages

a loan based on the equity in a hoe, that provides elderly homeowners with the tax-free income and is paid back with interest when the home is sold or the homeowner dies

installment sales credit

a loan that allows you to receive merchandise. You make a down payment and sign a contract to repay the balance in installments over a specified period

single lump-sum credit

a loan that must be repaid in total on a specified day

Consumer Credit Counseling Service (CCCS)

a local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems

mortgage

a long-term loan on a specific piece of property such as a home or other real estate

rule of 78s

a mathematical formula to determine how much interest has been paid at any point in a loan term

previous balance method

a method of computing finance charges that gives no credit for payments made during the billing period

average daily balance method

a method of computing finance charges that uses a weighted average of the account balance throughout the current billing period

add-on interest method

a method of computing interest in which interest is calculated on the full amount of the original principal

declining balance method

a method of computing interest when more than one payment is made on a simple interest loan

interest

a periodic charge for the use of credit

debit card

a plastic access card used in computerized banking transactions; also called a cash card

earnest money

a portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer

revolving check credit

a prearranged loan from a bank for a specified amount; also called a bank line of credit

compounding

a process that calculated interest based on previously earned interest

share accounts

a regular savings account at a credit union

credit bureaus

a reporting agency that assembles credit and other information about consumers

money market account

a savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates

certificate of deposit (CD)

a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate

money market fund

a savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments

line of credit

a short-term loan that is approved before the money is actually needed

syndicte

a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital

credit union

a user owned, nonprofit, cooperative financial institution that is organized for the benefit of its members

collateral

a valuable asset that is pledged to ensure loan payments

Chapter 13 bankruptcy

a voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court

traveler's check

allows you to make payments when you are away from home

emergency fund

amount of money you can obtain quickly in case of immediate need

asset management account

an all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account

credit

an arrangement to receive cash, goods, or services now and pay for them in the future

revolving line of credit

an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 years

overdraft protection

an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account

participation certificate (PC)

an equity investment in a pool of mortgages that have been purchased by a government agency, such as Ginnie Mae

condominiums

an individually owned housing unit in a building with several such units

share draft account

an interest bearing checking account at a credit union

buy-clown

an interest rate subsidy from a home builder or a real estate developer purchased by the buyer that reduces a home buyer's mortgage payments during the first few years of the loan

credit insurance

any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it

Equal Credit Opportunity Act (ECOA)

bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors

activity accounts

charge a fee for each check written and sometimes a fee for each deposit, in addition to a monthly service charge

cashier's check

check of financial institution

incidental credit

credit arrangement that has no extra costs and no specific repayment plan

installment cash credit

direct loan of money for personal purposes, home improvements, or vacation expenses, no down payment, payments in specified amounts

closing costs

fees and charges paid when a real estate transaction is completed; also called settlement costs

title insurance

insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforseen property claims not excluded by the policy

simple interest

interest compounded on principal only and without compounding

indirect investment

investment in which a trustee holds legal title to property on behalf of the investors

direct investment

investment in which the investor holds legal title to property

commercial property

land and buildings that produce lease or rental income

equity capital

money that a business obtains from its owners

escrow account

money, usually deposited with the lending financial institution, for the payments of property taxes and home owner's insurance

Chapter 7 bankruptcy

one type of personal (or straight) bankruptcy in which many debts are forgiven

closed-end credit

one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts

certified check

personal check with guaranteed payment

Consumer Credit Reporting Reform Act

places the burden of proof for accurate credit information on the credit reporting agency

mutual fund

pools the money from many investors-its shareholders- to invest in a variety of securities

points

prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1% of the loan amount

collectibles

rare coins, works of art, antiques, stamps, rare books, and other items that appeal to collectors and investors

zoning laws

restrictions on how the property in an area can be used

Fair Credit Billing Act (FCBA)

sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments

liquidity

the ability to buy or sell an investment quickly without substantially affecting the investments value

adjusted balance method

the assessment of finance charges after payments made during the billing period have been subtracted

capital

the borrowers assets or net worth

character

the borrowers attitude toward his or her credit obligations

capacity

the borrowers financial ability to meet credit obligations

maturity date

the date on which a corporation, government, or municipality will repay the borrowed money

line of credit

the dollar amount, which may or may not be borrowed, that a lender makes available to a borrower

conditions

the general economic conditions that can affect a borrower's ability to repay a loan

business cycle

the increase and decrease in a nation's economic activity

annual percentage rate (APR)

the percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit

rate of return

the percentage of increase in the value of savings as a result of interest earned; also called yield

annual percentage yield (APY)

the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365 day period

refinancing

the process of obtaining a new mortgage on a home to get a lower interest rate

asset allocation

the process of spreading your assets among several different types of investments (sometimes referred to as asset classes) to lessen risk

amoritization

the reduction of a loan balance through payments made over a period of time

economics

the study of how wealth is created and distributed

passive loss

the total amount of losses from a passive activity minus the total income from the passive activity

rate of return

the total income you receive on an investment over a specific period of time divided by the original amount invested

consumer credit

the use of credit for personal needs (except a home mortgage)

government bond

the written pledge of a government or a municipality to repay a specified sum of money, along with interest

finance charge

total dollar amount paid to use credit

regular checking accounts

usually have a monthly service charge that you may avoid by keeping a minimum balance in the account