Exam 1

Question 1

What is rule 72?

Answer 1

Used to find inflation rate. 72/annual inflation

Question 2

What is inflation

Answer 2

a rise in general prices

Question 3

What is interest rate?

Answer 3

Price to pay of borrowed money.

Question 4

What influences interest rates?

Answer 4

Forces of supply and demand

Question 5

Simple interest calculations

Answer 5

Refer to PV & FV sheets. (PV-Av)/AV = x
(Current x FV) = x

Question 6

What is financial plan?

Answer 6

formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Question 7

Types of risks to plan for..

Answer 7

inflation, interest rate, income, personal, & liquidity

Question 8

Money Management

Answer 8

Day to day financial activities necessary to manage current personal economic resources while working toward long-term financial security

Question 9

Money Management activities

Answer 9

financial documents, financial statements, budgeting

Question 10

Variable Expenses

Answer 10

Flexible payments that change from month to month. (Food, clothing, utilities)

Question 11

Fixed Expenses

Answer 11

Payments that do not vary from month to month. (Rent or mortgage, loans)

Question 12

Take home pay

Answer 12

Also known as net pay. A persons earnings after deductions for taxes and other items

Question 13

Disposable Income

Answer 13

Also known as take home pay. The amount a person or household has available to spend.

Question 14

Debt-Payments Ratio

Answer 14

Monthly credit payments divided by take home pay. Indicates how much of a persons earnings goes for debt payments.

Question 15

What are goals? Lengths?

Answer 15

Where you want to see yourself financially. Long-term: 5+ years. Short-term: Months to 1 year. Mid-term: 2-4 years.

Question 16

Opportunity costs

Answer 16

What you give up when making a choice. Also known as a trade off.

Question 17

Compounding

Answer 17

Future value computations. Allows the FV of a deposit to grow faster than it would if interest were paid only on the original deposit.

Question 18

Discounting

Answer 18

Present value computations.
Allow you to determine how much to deposit now to obtain a desired total in the future.

Question 19

Personal Financial Statements

Answer 19

Tell you the starting point of your financial journey. (Report, measure, maintain, provide)

Question 20

Balance sheet

Answer 20

Also called: Net worth statement. Reports what you own and what you owe. (Calculates net worth)

Question 21

Cash flow

Answer 21

Is that actual inflow and outflow of cash during a given time period.N

Question 22

Net worth

Answer 22

Difference between assets and liabilities.

Question 23

Purpose of tax

Answer 23

To provide revenue for government funded services

Question 24

Excise tax

Answer 24

imposed by federal government on goods such as gas, cigs, alcohol, tires etc

Question 25

Real estate property tax

Answer 25

taxes on lands & buildings

Question 26

Personal property tax

Answer 26

taxes on automobiles, boats, furniture, livestock

Question 27

Estate tax

Answer 27

imposed on the value of a persons property at time of death

Question 28

Inheritance tax

Answer 28

value of property from deceased

Question 29

Filing statuses

Answer 29

Married, single, widowed, head of household

Question 30

Tax credit

Answer 30

Results in a dollar for dollar reduction in the amount of taxes owed

Question 31

Tax deduction

Answer 31

Reduces the taxable income on which taxes are based

Question 32

Itemized deductions

Answer 32

Expenses a taxpayer is allowed to deduct from adjusted gross income. (Medical expenses, taxes, interest, contributions)

Question 33

Tax forms

Answer 33

1040,

Question 34

Types of income

Answer 34

Earned, investment, & passive

Question 35

Earned income

Answer 35

usually in the form of wages, salary, commissions

Question 36

Investment income

Answer 36

Also known as portfolio. Money received in the form of dividends, interest, or rent

Question 37

Passive income

Answer 37

results from business activities in which you don't participate in (limited partnership)

Question 38

Adjusted gross income

Answer 38

gross income after certain reductions have been made

Question 39

tax shelters

Answer 39

investments that provide immediate tax benefits and a reasonable expectation of a future financial return

Question 40

tax deductions

Answer 40

an amount subtracted from adjusted gross income to arrive at taxable income

Question 41

standard deduction

Answer 41

a set amount on which no taxes are paid

Question 42

exemptions

Answer 42

allowed as a deduction from adjusted gross income for yourself of other dependents

Question 43

marginal tax rate

Answer 43

highest bracket and associated rate that applies to your income

Question 44

average tax rate

Answer 44

based on the total tax due divided by taxable income

Question 45

tax credit

Answer 45

an amount subtracted directly from the amount of taxes owed

Question 46

tax audit

Answer 46

a detailed examination of your tax return by the IRS

Question 47

Types of audit

Answer 47

correspondence, office & field