EXAM PREP MIDTERN ONE Flashcards
(128 cards)
1
Q
Why is a dollar today usually worth more than a dollar one year from now?
A
- Its more certain, 2. Impatience to consume, 3. Could be invested, 4, Inflation
2
Q
Where should you calculate inflation
A
Bureau of Labor Statistics consumer price index inflation calculator
3
Q
What is the measure of the amount of purchasing power of a dollar in different periods
A
Consumer Price Index (CPI)
4
Q
An ________ is an agreement between you and a bank, brokerage, credit card issuer, a utility company
A
Account
5
Q
An ____________ is a record of transactions
A
Account
6
Q
What is an account?
A
An agreement
7
Q
What are common features of all accounts
A
Name, Number, Record of Transactions, Current Balance
8
Q
What are three examples of accounts
A
Checking, Savings, Loan
9
Q
Account that has you Deposit and withdraw money, auto deposit pay check, write check, may include debit card, electronic transfers, low or no interest, may require monthly fee, balance is how much money you have
A
Checking account
10
Q
Account that has you, deposit and withdraw, earn interest, make electronic transfers, Balance
A
Savings account
11
Q
Account that has a bank lend you money, you make payments, charged interest, balance
A
Loan account
12
Q
Account that is typically opened by a bank and you deposit money/stocks and you receive interest of dividend payments. Buy and sell stocks, retirement accounts
A
Investment account
13
Q
Account that has you make charges to a credit card, make payments, charge interest for unpaid balance
A
Credit card account
14
Q
What does the rule of 72 calculate
A
Time needed to double money; Interest rate needed to double money
15
Q
RULE OF 72: 8% rate of return
A
72 / 8% = 9 years
16
Q
RULE OF 72: 12% rate of return
A
72/ 12% = 6 years
17
Q
Rule of 72: rate you would need to double in 4 years
A
72 / 4 years = 18%
18
Q
What is the difference between compound and simple interest?
A
Simple: applies to original value; Compound: applies to the new value (Interest on Interest)
19
Q
Fixed Variable
A
A cost that does not change every month
20
Q
Variable Expense
A
A cost that will change every month
21
Q
In a budget, what should savings be treated as?
A
An expense
22
Q
What should you use instead of a savings account
A
High-Yield Savings account
23
Q
What amount of months should an emergency fund contain
A
3-6 month of fixed expenses
24
Q
What you should you look at when trying to find a High-Yield Savings account
A
Competitive rate (4.5%), National brand name, ability to link external accounts, good customer service, FDIC insurance
25
Strategies to increase savings rate
- increase future income increases, annual raises, save half spend half, put on auto- pilot, use payroll program at employer, use apps
26
Paying on-time counts for 35% of your FICO score, how can you ensure you always pay on time?
Enable auto pay for the statement balance, enable paper statements
27
Always pay your _____ Balance by the_______
Statement, Due Day
28
Utilization counts for 30% of your credit score. What are some ways to lower your utilization
1. ask for a larger credit line, 2. make payments before your statement closes, 3. get another card, 4. use your debit card
29
Card that instantly deducts from your account, most similar to paying cash, can get cash back at retailers, usually also an ATM, Hard to overspend, usually get one when opening a checking account, no annual fees, no impact to credit score or report, no rewards
DEBIT CARD
30
This card basically gives a 30 day loan, not free money, charges high interest if not paid off, offers more purchase protection, often earn rewards
CREDIT CARD
31
_______ scores measure your credit risk based on your credit file
FICO
32
35% of the Credit Score
Payment History
33
30% of Credit Score
Utilization
34
15% of Credit Score
Avg Age of Accounts 15%
35
10% of the Credit Score
Mix of Credit, Recent Inquiries
36
How long do missed payments hurt you for
7 years
37
True of false: Does 1 missed payment hurt you
TRUE
38
What are some way to lower utilization
Mid-period payments, get a higher credit line
39
Hard pull vs soft pull (Recent Inquires)
HP: When a lender checks your credit give ssn
SP: Check your own credit report, pre approval offers, existing lenders check, don't affect you
40
Does checking your credit score hurt you
NO
41
Where do you want to keep Utilization under
10%
42
Should you keep your oldest lines open
YES
43
Is it a good idea to take cash advance
no
44
should you slowly increase your credit limits
yes
45
What is a secured credit card
When you don't pay your balance they deduct from deposit
46
47
How long do late payments last on your report
7 years
48
How long do bankruptcies last on your credit report
7 years for chapter 13, 10 years for chapter 7 and 11
49
How long do foreclosures last on you credit
7 years
50
How long do collections last on your report
7 years
51
How long does public record last on your report
7 years
52
How does an index fund differ from the activity managed mutual fund
Index fund are passively managed and match the performance of the market; Active mutual funds try to outperform the market
53
True/False: When saving for retirement, one should typically invest in their tax advantaged accounts (IRA and 401k) before investing in their brokerage account
True (Roth IRAs and 401ks better for IRS)
54
Generally, the sooner you need the money you are investing, the___________
less risky it should be invested
55
DO not buy mutual funds with ____ fees
load
56
When buying a mutual fund always look at the ___________
Fees
57
What are the pros of index funds
Inexpensive, well diversified, liquid, Relatively tax efficient, work well with well regulated markets
58
What are the cons of index funds
Overvalued stocks, concentrate voting rights at mutual fund companies, potential tax disadvantages, may contribute to mispricing in poorly regulated markets
59
Should you try to diversify your portfolio
YES
60
Should young people be in more stocks or more bonds
More stocks, they are not retiring soon
61
What are the 5 different accounts that you can have
Checking, High Yield Savings, Brokerage, Retirement, some additional account
62
What are the short term funds that you should invest in (Now - 3 years)
Cash, high yield savings, no losses
63
What accounts should you have for intermediate funds (3-10 years).
Brokerage account, moderately invested, can withdraw with no penalty but taxes
64
What should you have for long terms funds (retirement)
Roth/Trad IRA, Roth/Trad 401k, aggressively invested now, less so later
65
What should your checking account do
Provide enough money for living, it is your workhorse
66
IRA
7000 limit per yera, funding window jan - apr15 (fol yr.) can open anywhere, nothing to do with employer
67
401K
23,000 Funding Jan 1 - Dec 31, must be employer
68
The Priority of Saving
1. 401K, 2. Rainy Day Fund, 3. Pay down debts, 4. IRA / 401k, 5. Brokerage account, 6. Kid's college, Exotics or alternative.
69
What should your focus order be
Savings Rate, Stock Bond Split, Portfolio Allocation, Fees, Taxes, Cash Drag
70
Should you invest or should you save
Invest to make more money and protect against inflation
71
How does a target Date fund differ from a total market index fund
Target date funds follow a glidepath, means they get conservative over time
72
Are all target date funds inexpensive
no, always check fees
73
To get exposed to S&P 500 one could purchase an index fund or ETF, which would be better
They the same just pick one
74
When do you use a Backdoor Roth IRA
Applies when you earn too much to contribute directly to a ROTH IRA
75
Which is more risky, a lending investment or an ownership investment
Lending investment
76
Can a bondholder lose their entire investment
Yes, if the company goes bankrupt, but they are at the front of the line
77
What are two examples of Ownership Investments
Real estate, stocks
78
How much should you allocate to stocks and bonds in your risk profile
Conservative 100-(age) is the percent portfolio in stocks, Moderate 110 and aggressive 115
79
What is Dow Jones
30 large stocks from the NYSE and NASDAQ
79
80
True of false, does the top 50 in the 500 equal the bottom 450
True
81
What is the difference between mutual and index funds
Mutual funds try to beat the market, Index try to match the market. Mutual funds cost higher
82
What is an ETF
A basket of securities that trades intra-day, more tax efficient that index funds, can trade while market is open
83
Do all etfs have low fees , and have good diversification
No
84
What are some different types of ETFS that you can have
Stock, bond, Marijuana
85
If you are defaulted into target date fund ensure that it is a target date ___________ fund
INDEX
86
What should your expense ratios be under when picking a 401k fund
(0.25%)
87
Should you have multiple asset classes, what is the minimum
Yes, you should have at least 3 asset classes
88
Should target date funds be held in brokerage accounts
No because they are not as tax efficient as ETFS
89
Is robinhood a good way to invest
no, not safe, they make it appear safer than it actually is, too easy to invest
90
Who is paying robinhood
citadel
91
Who actually democratized investing
John C Bogle
92
Why you are buying or selling an asset what should you ask
"Who is selling to me, and why"
93
Defined Benefit Pension Plan
Expensive for employers, riskier for employers, employers responsible for saving enough. If employee quits job, they get nothing
94
Defined contribution (401k, 403b) Pension Plans
Cheaper for employers, risk is on employees, Employee responsible, Easily portable
95
Is auto enrollment a big deal
Yes, because people are lazy and don't want to think about things
96
What should you do when you get a job
Sign up for 401k plan and 403b plan, save enough to match employers entire matching contribution, whenever you get raise save 1/2, buy low cost index and target funds
97
Where should you invest
Discount brokerage (Fidelity, Vanguard, Schwab)
98
Where should you not invest
day trading platforms robin hood, Webull, entertainment only
99
What are the ways that financial advisor have fees
Assets under management, Hourly model, Monthly model
100
When should you get an financial investor
When your financial situation is complicated
100
Should you let a financial investor do you investments
No, only financial advice
100
What should you avoid like the plague
Mutual fund loads
101
Advertisements for Online Trading tend to emphasize which of the following
That making your own trading decisions puts you in control, That trading is fun, and that it is easy to trade online
102
103
Why is social security a PAYGO system
Because Payroll taxes paid by current workers are used to pay current retirement benefits
104
True or false: Most people in good health should claim social security retirement benefits at age 62
True
105
True or False: Social security started with a huge unfunded liability because benefits were paid to retirees, such as IDA MAY FULLER, who did not pay that much into the system
True
106
Psychologists find taht when people are in a good mood their decision making is
more spontaneous
107
If you buy a company's stock
you own a part of the company
108
If you buy a company bond
you have lent money to the company
109
If a company files for bankruptcy, which of the following securities is most at risk for becoming virtually worthless
The company's stock
110
Investments with higher risk always have higher expected returns
False
111
Does varience equal risk
Yes
112
Is it good to have a diversified portfolio
YES
113
Does having a diversified portfolio of stocks protect you from broad economic wide risk
YES
114
Is compound interest accrued interest
yes
115
Savings accounts use compound interest
Yes
116
Should you save for you retirement of for your childrens education first
retirment
117
What are some ways to save more
Increase income, automate savings, don't neglect the small stuff, focus on the big stuff
118
Should you sign up for you 401k plan immediately when you get a job
Yes
119
Elizabeth Warren and Amelia Warren Tyagi recommend that you budget no more than_____ of after tax income for expense that you must pay every moth
50%
120
What should be the highest priority
Paying off credit card debt
121
Is it easy to look up the fees for mutual funds
yes
122
Does the fees charged by index funds vary with the types of assets that the funds invest in
True
123
Bajamin Graham recommended holding no more than 75% of ones portfolio in stocks and no less than 25% in gold
false, gold should be bonds not gold
124
What is part of the major credit Bureau
Equifax, Experian, TransUnion
125
