Final+Exam+-+Review+Sheet

8/10/2019 Final+Exam+-+Review+Sheet

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Eco110PersonalFinanceandFinancialDecisionMakingFinal

Exam

Review

Sheet

Chapter1PersonalFinancialPlanninginAction

What

personal

and

economic

factors

affect

financial

decisions?

Whatistheruleof72?Howisitapplied?

Calculaterateofincreaseinprices

o Useinflationratestocalculateexpenses

Whoishelpedbyinflation?Whoishurt?

Calculateearningsfromsavings

Whatdoestimevalueofmoneymeasure?

Howdoyoucalculatefuturevalue?Presentvalue?

o Usingchartstoevaluate(Exhibits1Athrough1D)

o Singleamount

o

Seriesof

deposits

Whataredifferenttypesofrisk?

Chapter2MoneyManagementSkills Whatarethe3majormoneymanagementactivities?

Howlongshouldyoukeepdifferenttypesofdocuments?Forexample:

o Creditcardstatements,mortgagedocuments,retirementaccount

information,taxrecords,housingrecords

Whatdo

we

use

personal

financial

statements

for?

Assets(liquid),Liabilities,andnetworth

Cashinflow,cashoutflow

o Surplus/deficit

Ratios

o Liquidityratio

o Debtratio

o Currentratio

o Debtpaymentsratio

o

Savingsratio

Howcanyouincreasesavingseasily?

Fixed/variableexpenses


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Chapter3TaxesinYourFinancialPlan Whatarethe4majorcategoriesoftaxes?

Calculatetaxableincome

Whatisthedifferencebetweentaxexemptandtaxdeferrable?

o

Itemizedvs.

standard

deduction

o Taxdeductionvs.taxcredit

o Marginalvs.averagetaxrates

o Taxavoidancevs.taxevasion

Comparingdifferenttaxsituations

o Familyvs.marriedvs.singletaxpayer

o Whatarethemainsourcesofhelpfortaxpreparation?

o HowcanoneavoidanIRSaudit?

o 1040EZ,1040A,1040

o

Common

tax

saving

methods?

Calculatingannuallostincomethroughlostsavings

Retirementaccountdeductions

o Taxsavingscalculations/Futureandcurrent

Chapter4FinancialServices:SavingsPlansandPayment

Accounts Whatarethemajorcategoriesoffinancialservices?

o

Whatfactors

play

into

aconsumers

choice

of

bank?

Whataredifferenttypesofsavingsplans?

o Moneymarketaccountvs.moneymarketfund

o Importantfactorstosavingsplans

Whatfactorsaffectchoiceofcheckingaccounts?

Savingstotals

o Compoundedannually/Singledepositvs.seriesofdeposits

Presentvalueofdeposit

o Singlevs.seriesofdeposits

Annual

percentage

yield

Comparingtaxfreeyieldtotaxableyield

o Whichwillhavebetterreturnonsavings?

FDICcoveragewhatdoesitentail?

CalculatepenaltiesforearlywithdrawalfromCD

Calculatinginterest(withrespecttooverdraftfees)

o Annualfees

Bankreconciliationcalculateadjustedbalance


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Chapter5ConsumerCredit:Advantages,Disadvantages,Sources,

andCosts Whatisconsumercredit?Whyisitimportant?Whataretwotypes?

o Namethetwogeneralrulesofmeasuringcreditcapacity

Usingmarketvaluesandnetworthofhometodetermineborrowing

ability

Whatdoesitmeantolivewithinyourmeans?

o Calculateadebtpaymenttoincomeratio

o 20%rule?

Computefinancecharges

o CalculateAPR(onetimeormonthly)

Whatisacreditbureau?Whatshouldyoudoifyouaredeniedcredit?

Whattwomainthingsshouldyourememberwhenyouborrowmoney?

Cashadvancesvs.creditcardpayments

o Calculateacashadvancefee

o

Calculatemonthly

interest

given

APR

Calculatinginterest

o Calculatingaddoninterest,monthlypayments,andAPR

Whatshouldyoudoifthereisabillingerroronyourstatement?Whatif

someonestoleyouridentity?Howcanyoubetterprotectyourselfonline?

o Chapter7vs.Chapter13bankruptcy

Chapter6ConsumerPurchasingStrategies&WiseBuyingof

MotorVehicles Whatisthedifferencebetweenaservicecontractandwarranty?What

kindsofwarrantiesarethere?

Comparingcreditpaymentstopayinginfull

Comparingyearly(single)paymenttofuturevalue(presentvalue)of

savings

Calculatingunitprices

Comparebuying/leasingcar

o Whatshouldyoudowhenbuyingausedcar?Whatmightreduce

thelife

of

your

car?

o Variableversusfixedcostsofoperation

o Operatingcostpermile

Whattendstocauseconsumerproblems/complaints? Howarethey

typicallyresolved?

Differencebetweenarbitrationandmediation

o Classactionsuits/Whenmightthisbehelpful?


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Chapter7SelectingandFinancingHousing Comparecostsofrenting/buyinghome

o Whatitemsonaleasearenegotiable?

o Earnedinterestonsecuritydeposit

o Condominiumfees

Property

taxes,

insurance,

condo

association

fee,

mortgage

payment

o Pros/consofowning

Affordablecostofhome

o Affordablemortgageamount,payment

o Comparetotalpayments

o Compareinterestrates

Whataffectsqualificationformortgage?

Whymightonewantanadjustableratemortgage?

Refinancingeffectonmonthlypayments,totalpayments

Whatshould

you

do

when

you

want

to

sell

your

home?

What

affects

sellingprice?

o Howshouldyoudecidebetweensellingonyourownorusingan

agent?

Chapter8HomeandAutomobileInsurance Whatisinsurance?Whatisapremium?

Riskvs.Perilvs.Hazard(examplesmighthelpyourememberdifferences)

Examplesof

risks

o Personalrisk(disability,illness,death,retirement)

o Propertyrisk

o Liabilityrisk

Whatiscoveredinhomeownerinsurance?Whatisanumbrellapolicy?

o Building/Livingexpenses/PersonalProperty/PersonalLiability

Whatisrentersinsurance?

o Twotypes(broad,comprehensive)Whatisthedifference?

Howmuchhome(orrenter)coveragedoyouneed?

Automobileinsurance

what

is

covered?

o Bodilyinjury/MedicalPayments/Uninsuredmotorist

o Propertyvs.Collision(doyouknowthedifference?)

o Comprehensive(differencefrompropertyand/orcollision)?

Whatisnofaultsystem?

Whatfactorsinfluencehowmuchautoinsurancecosts?


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Chapter9HealthandDisabilityIncomeInsurance Whyishealthanddisabilityinsurancerelevantforfinancialplanning?

o Keydifferencebetweenmosttypesofhealthinsuranceandother

typesofinsurance(e.g.,auto,life,house):healthinsuranceoften

paysfornormal(notcatastrophic)events

Three

ways

one

can

purchase

health

insurance

(not

including

Obama

care):Group,Individual,COBRA

Types:Basic(hospital,surgical,physician,majormedical)/Longterm

care

Keyterms:coinsurance,copayment,deductible,outofpocketlimit,stop

loss,etc.

Typesofplans:private,BCBS,HMO,PPOPOS

Governmenthealthcare(notincludingObamacare):Medicare,Medicaid

Disabilityinsurance(types),benefitsvs.costs

OverviewofreasonsfortheveryhighmedicalcostsinU.S.

Chapter10FinancialPlanningwithLifeInsurance Whatislifeinsurance?

o Wholevs.Term. Purposes(reasonsfor)lifeinsurance?

o Term+Annuitytoapproximatewhole

Howtoestimatehowmuchlifeinsuranceyouneed?

o Differentmethods

o Whenindoubt,usetheeasymethodwithamultipleof5to10

Twotypes

of

life

insurance

companies:

o participatingandnonparticipating(differences/advantages/

disadvantages)

Twomaintypesoflifeinsurance(whole,term). (differences/

advantages/disadvantages)

o Thereisathirdtype(universallife)butitisnotwidelyutilized

Keyprovisionsinatypicallifeinsurancepolicy?

Whattolookforfromwhomyoubuylifeinsurance?

FinancialPlanningwithAnnuities(costsvs.benefits)

o

Whybuy

an

annuity?

o Immediate&Deferredannuities

o Fixedvs.Variableannuitiesdoyouknowthedifference?


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Chapter11InvestingBasicsandEvaluatingBonds Keythingstodowhenpreparingyourinvestmentprogram

o Budget

o Evaluateyourrisktolerance,

o Reducecreditcarddebt,establishemergencyfund,etc.

Relevance

of

time

value

of

money

to

investing

Factorsaffectingthechoiceofinvestments(safetyvs.riskfactors)

Keyriskfactors(inflation,interestrate,businessfailure,market)

Howcandiversification(assetallocation)reduceinvestmentrisk?

U.S.Governmentbonds,bills,notes,TIPS;

Stateandlocalbonds(differencebetweengeneralobligationandrevenue

bonds)

Corporatebonds

Inverserelationshipbetweeninterestratesandmarketvalueofabond

Bondratingsandratingagencies

Chapter12InvestinginStocks Keyfeaturesofcommonandpreferredstock

Whatisequityfinancing? Dividend?Stocksplit?

Returnfromowningstock:dividendincome&priceappreciation

Classificationofstocksinvestments(bluechip,cyclical,etc.)

Keynumericalmeasuresthatinfluenceinvestmentdecisions(earningsper

share,priceearningsratio,projectedearnings,dividendyield,etc.).

Knowformulae

and

how

to

calculate

Isbookvaluethesameasacompanysstockmarketvaluation?

Basicsofbuying&sellingstock(markets,brokeragefirms,etc.)

o Marketorder,limitorder,stoplossorder

Longtermvs.Shortterminvestmentstrategies

Whatissellingshort?


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Chapter13InvestinginMutualFunds Whatisamutualfund?Whydoinvestorspurchasemutualfunds(say,

insteadofstocks)? Advantages/disadvantages?

Classificationofmutualfunds(closedend,ETF,openend). Knowthe

differences.

Loadvs.noloadfunds;redemptionfee(backendload).Whywould

firmschargefrontendand/orbackendloads?Whyaretheimplication

foraninvestorsreturn?

Expenseratiohowdoesitmatter?

Typesofmutualfunds(stock,bond,hybrid/balanced/fundoffunds,

lifecyclemoneymarket)

Whattoconsiderwhenpickingmutualfunds(retirementvs.investment)

Managedvs.Indexfundsprosandcons

Return

on

investment

(income

and

capital

gain

with

mutual

funds)

Taxissues;howdoesturnoverratiomatter(thinkabouttaximplication)?

Chapter14StartingEarly:RetirementandEstatePlanning Timevalueofmoneyandtheimportanceofstartingearly(Exhibit141

doyouunderstand?)

Timevalueofmoneyandestimatingretirementexpenses(planfor

emergencies,healthexpenses,etc.).Howmuchmoneywillyouneedina

typicalyear

in

retirement?

How

much

money

do

you

need

to

allocate

to

majorfinancialcontingencies(e.g.,hospitalization, nursinghome,etc.)

MajorSourcesofRetirementincome(employerpension,publicpension,

personalretirementplans,annuities);socialsecurityisapublicpension

plan

Whatisvesting?

Twotypesofemployerplans:definedbenefitplananddefined

contributionplan(knowthedifference)

Typesofindividualretirementaccounts

WhatisthedifferencebetweenregularIRAandRothIRA?

EstatePlanning:whatisit?Whywouldapersondoit? Wills(types:simple,traditionalmaritalshare,exemptiontrust,stated

amount).

Whatisprobate? Executorvs.guardian

Whatisalivingwill?

Trusts(types:creditshelter,disclaimer,living,testamentary)

Estatetaxes(fourmajortypesoftaxes)

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