BFIN 210 exam 3 Flashcards
(64 cards)
In order to receive a paycheck, an employee must
Complete a Form W-4
Employee’s Withholding Allowance Certificate
Complete a Form I-9
Employment Eligibility Verification
W-4 form
Determines the % or $ amount deducted from the employee’s paycheck for income related taxes.
Sections:
Personal Information
Multiple Jobs or Spousal Income
Dependents
Other Adjustments
I-9 form
Used to verify the eligibility of individuals to avoid hiring undocumented workers or others who are not eligible to work in the United States
Must provide multiple forms of documentation to establish identity and employment eligibility
Driver’s license
Passport
Social Security card
Birth certificate
what are liquid assets aka savings
cash or accounts that can easily be converted into cash, without selling an investment
-low risk, low return
keep in mind the more cash you got the more tempted you are to spend it
Key to Successful Savings: Pay Yourself First
Have savings automatically deducted from your paycheck is the best strategy for effective savings!
When Choosing Banks….Look at the 3 C’s
Costs
Rate of Interest Paid
Minimum balance requirements
Fees: Checks / ATMs / Other
Conveniences
Location of branches
Availability of ATM’s
Safety deposit boxes
Direct deposit services
Online capabilities, Mobile applications
Overdraft protection
Considerations
Personal attention
Financial advice / Budgeting help
Safety (banks and credit unions are federally insured)
most important factor impacting rate of return
risk
-Convenience
-Ease of Access
-Time to Access
-Minimum Balance Requirements
Checking Accounts
-
lowest relative return
Watch out for usage fees &
Opportunity cost of keeping too high a balance
+
federally insured (safe)
Cash is available whenever you need it
High Yield Savings Account
+
slightly higher interest rate & rate of return than a Checking Account
federally insured (safe)
-
some minimum balance and holding time
Certificates of Deposits (CD’s)
Usually pay a fixed agreed upon rate of interest
Funds are on deposit for a “locked” period of time from 30 days to several years
-
Early withdrawal penalty or forego some or all interest
Fixed interest rate
Minimum deposit requirements
larger locked term larger interest rate
Mutual fund
When investors put a pile of their money together and give it to a fund manager to invest in securities (stocks, bonds, etc.) in hopes of generating income
Money Market Mutual Funds (MMMFs)
Investors pool money and receive interest/returns on investments less an administrative fee (usually <1% of total investment)
(Include: High quality securities, CD’s, US Bonds, etc…)
Administrative fees
Minimum initial investment
Comes with some investment risk; Not insured
Most conservative mutual fund
U.S. Treasury bills, or T-bills
Short-term debt issued by the federal government with maturities from 3-12 months
Risk-free
May offer tax benefits…
-
Low rate of return
U.S. Savings Bonds
Series EE and I bonds are safe, low risk savings products issued by the Treasury with low denominations for longer maturities
Low liquidity
Semi-annual compounding
time-based element of goals
Short-term – within 1 year. (minimum rate of return)
Intermediate-term – 1-10 years (medium % return)
Long-term – over 10 years (high average return
Reality Check Before Investing
Do you have a grip on your financial affairs?
enough liquidity / SAVINGS?
How stable is your work & personal life?
Liquidating investments before their time
is risky and can be expensive.
TVM-Time Value of Money
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
TVM Discounting
Moving a cash flow backwards in time
Calculates the PV of a future sum of money
TVM Compounding
Moving a cash flow forward in time
Calculates the FV of an investment at some point in the future
Good vs bad compound interest
good on investments, earning interest on making it easier to get paid
bad on debt, the whole you dug gets bigger making it harder to get out
rule of 72
tells you how long it will take to double your money given a certain rate of return/interest rate
e.g = 72 / 9 = 8 years
FV vs PV of Annuities
An annuity is a series of equal dollar investments made on a regular basis.
FV and PV are the same just this kind is paid in equal payments
Amortized Loan
loans paid off in equal installments
Each payment includes part principal and part interest. Over time,
each payment includes more principal and less interest
Compound interest
NOT retroactive (does not apply to past events or situations.)
For every decade that you delay saving, the required investment to reach the same goal TRIPLES!
Saving for long term goals is easier if you start early and leverage the power of compound interest!
