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FI 370 > Exam 2 > Flashcards

Exam 2 Flashcards

(63 cards)

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1
Q

Short Term Debt

A

Any debt lasting 90 days - 1 year

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2
Q

Long Term Debt

A

Debt lasting 1-3 years or longer

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3
Q

Unsecured Debt

A

Does not have any collateral behind it

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4
Q

Secured Debt

A

Backed by some form of collateral behind it
-in a better position than unsecured

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5
Q

Close-End Credit

A

One time loan for specific purpose that you pay back
-Ex: Loan, Mortgage

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6
Q

Open-End Credit

A

Use as needed until reaching credit max
-Ex: Credit Card

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7
Q

Fixed-Rate Mortgage:

A

Interest rate is fixed and does not change over the life time of the loan

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8
Q

Adjustable Rate Mortgage(ARM):

A

Interest rate varies w/market and index
-Rate is based on a formula
-Possible Cap/Floor for the rate

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9
Q

Front End Ratio:

A

(Monthly Housing Expense/ Borrowers gross monthly income)
-Used to find max $ creditors should lend

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10
Q

Back End Ratio:

A

(Borrowers Total Debt/ Gross Monthly Income)

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11
Q

Debt Payments to Income Ratio:

A

(Monthly Debt Payments/Net Monthly Income)
-Consumer credit payments should not exceed 20% of your net income

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12
Q

Debt to Equity Ratio:

A

Total Liabilities / Net Worth
-Should be less than 1

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13
Q

3 Major Credit Reporting Agencies(CRA):

A

1) Experian
2) Equifax
3) Transunion
-Get 1 free report per year

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14
Q

Credit Report Contains:

A

1) Identifying Information
2) Credit History
3) Public Records
4) Inquiries Section

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15
Q

FICO Credit Score Makeup:

A

35% - Payment History
30% - Amounts Owed
15% - Length of Credit History
10% - New Credit
10% - Types of Credit Used

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16
Q

Justin Castelli Notes:

A

-Where you start is not where you end up
-Be careful of “advice”

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17
Q

4 Types of Taxes:

A

Taxes on:
1) Purchases
2) Property
3) Wealth
4) Earnings

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18
Q

Tax Form 1040

A

Where you file your taxes

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19
Q

Schedule 1

A

Additional other income + expenses

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20
Q

Schedule A

A

Itemized Deductions

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21
Q

Schedule B

A

Taxable income/dividends that are received

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22
Q

Schedule D

A

Capital gain from investments

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23
Q

Adjusted Gross Income(AGI):

A

Gross income after certain deductions have been made
-Contribution to IRA, SEP or SIMPLE Retirement.
-Penalties for early withdrawal of savings
-Alimony payments
-Student loan interest deduction

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24
Q

Itemized Deductions

A

Specific items that give you deductions
-Medical expenses, contributions to charity
-Schedule A

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25
Marginal Tax Rate
Rate you will pay on your last highest dollar of income
26
Effective Tax Rate
Average rate you pay on your total taxable income ETR = Taxes Owed / Taxable Income
27
Tax Credit
Amount subtracted directly from the amount of taxes you owe
28
Tax Deduction
Reduces the income that is subject to taxes
29
Form 4868
Allows auto 6-month extension to file the federal return
30
W2 Form
Reported salary and wages by your employer -reported by Jan 31st
31
To Minimize Taxes:
1) Same or lower tax rate next year -Accelerate deductions -Delay income 2) Higher tax rate next year -Delay deductions -Accelerate income
32
Pure Risk:
Personal, property, liability risk -Insurable, chance of loss -Accidental/unintentional
33
Life Insurance:
Protect someone who depends on you from financial loss related to your death
34
Estimating Life Insurance Needs:
1) 70% or your salary for 7 years 2) DINK = 1/2 debts + funeral expenses 3) Non-working spouse = # of years until youngest is 18 * $10,000
35
Types of Life Insurance:
1) Temporary/Term 2) Whole Life/Straight Life 3) Universal Life 4) Variable Life 5) Variable Universal
36
Temporary/Term Insurance
Protection for specified period of time
37
Whole life/straight life
Pay premium as long as you live
38
Universal life insurance
Gives you more direct control (can be changed)
39
Variable life insurance
Fixed annual premium
40
Variable universal insurance
Blended product from universal + variable policies
41
Education Needs Analysis
1) Estimate college cost in current dollars 2) Project costs allowing for inflation 3) Determine investment amount -Lump sum vs Periodic Payment
42
FV Formula
PV x (1+r)^n
43
PV Formula
FV/ (1+r)^n
44
Education Financing Options
1) Pay as you go 2) Find someone to help you pay 3) Save now for later -529 Plan, Coverdell Education Savings Account, U.S Savings Bonds, IRA
45
What are the 2 tax deferred education savings account?
-529 Plan -Coverdell Education Savings Account
46
Coverdell Education Savings Account
Exclusively for qualified education expenses -Exemption from federal taxation -max of $2k per year per beneficiary
47
Expected Family Contribution Formula
Student Contribution + Family Contribution
48
Will
The legal declaration of a person's mind as to the disposition of his or her property after death -Transfers property according to your wishes at death
49
Die intestate
Die without a will -State law determines distribution of assets
50
Will Executor
Takes control of assets of the estate
51
Will Guardian
A guardian assumes the responsibility for providing children with the personal care and managing the estate for them
52
Durable Power of Attorney
Legal document authorizing someone to act on your behalf -Can be general or limited in nature -When you are still alive but you are unable to do anything(In a coma)
53
Codicil
Change to your will
54
Advance Directive:
Additional things you want -Health care proxy: tell doctor how you want to be treated -Letter of last instruction
55
Trust
A legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries -takes care of or manages your property -distribute your assets to your heirs -all assets are taken out of your name and put in the name of the trust
56
Benefits of trusts
-Reduce estate taxes -Avoid probate and transfer your assets immediately -Free you from managing assets -Provide income for a surviving spouse -Ensures property serves desired purpose after death
57
Types of Trusts:
Living Trust: Set up while you're alive to manage your property. Testamentary Trust: Created by your will, after you pass away. Credit-Shelter Trust: Helps reduce estate taxes, typically for married couples. Life Insurance Trust: Holds life insurance policies to avoid estate taxes and control the payout.
58
Revocable vs Irrevocable Trust
-Revocable: you can change it during your lifetime -Irrevocable: you cannot change the terms
59
Probate Process
The process of which the court validates the will and distributing a dead persons assets.
60
Intestate succession
the laws governing the allocation of a deceased person's assets when they die without a valid will
61
Testate succession
When a person dies and leaves a valid will
62
Tax form 706
Estate tax form
63
3 required documents:
1) Will 2) Durable power of attorney 3) Advance Directive

FI 370 (3 decks)

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