General Principals Flashcards

Question

Entity Purchase Agreements (or, Stock Redemption Plan)

Answer 1

Method of transfering business interest to business using life insurance policies. * Good for multiple partners. * Business buys a policy for each partner. * Benefit passes tax free to business * Business pays policy. * Better for more owners

Answer 2

Method of transfering business interest that offers flexibility to both partners & business. **Step #1**: Business has 1st option to buy deceased partners stock. or half **Step #2**: Surviving partners have option to buy if business declined or if the business only bought half. **Step #3:** Business is required to buy rest of shares

Answer 3

Causes people to overestimate their knowledge and under estimate risk. Factors leading to overconfidence: Choice, Task Familiarity, Info, Past success.

Answer 4

People suffer more greatly to losses than benefit from gain.

Answer 5

People seek pride and avoid regret. - Sell winners too quickly - Hold losers too long

Answer 6

House Money Effect: Take more risk. Maybe they won early and are playing with house money now. Snakebite Effect: Take Less risk Break-Evenitis - Take more risk to catch up.

Answer 7

Leads to naive diversification

Answer 8

Single stock concentration... maybe due to where they worked

Answer 9

Find comfort in groups/numbers. Tend to do what they do.

Answer 10

Can be convinced of trends or patters that aren't really there. Leads to market bubbles.

Answer 11

Have a stable economy with... 2% inflation 4% unemployment

Answer 12

Discount Rate (rate banks borrow from government) Reserve Requirement Open Market Activities (buy/sell securities in open market)

Answer 13

Goal is to slow pace of growth & lower inflation. Fed will: Raise discount rate (increase cost of borrowing) Raise Reserve Requirement Sell Securities (take $$ out of economy)

Answer 14

Goal is to encourage the economy to grow. Lower Discount Rate (lowers cost to borrow $$) Lower Reserve Requirement (makes banks hold less in reserve) Buys Securities (puts $$ back into economy)

Answer 15

Any approach to problem solving that employs a more practical method that's not guaranteed to be optimal. -Rules of thumb, trial & error, educated guesses.

Answer 16

When an investor sets a value at initial point of purchase. - usually the buy price - they tend to think its the true value of the investment despite what the market says.

Answer 17

Government Spending & Taxation - When things are bad, congress will spend more to stimulate the economy and lower taxes. - political in nature

Answer 18

The Federal Reserve (the fed)

Answer 19

- measures risk adjusted return of a portfolio in terms of standard deviation. - ONLY appropriate when R2 is less than .7 - Use to compare against other instruments sharpe ratio. rp-rf/standard deviation

Answer 20

Measures risk adjusted performance of a portfolio manager. Appropriate to use when R2 is greater than or equal to .7 useful when comparing to other investments.

Answer 21

Used to quantify expected return given a market return & a beta to the market. - Used to quantify investors required rate of return. - Used to plot security market line (efficient frontier)

Answer 22

Formula is on CFP Sheet. ri=rf+(rm-rf)Bi (rm-rf)Bi = Stock Premium (rm-rf) = Market Risk Premium

Answer 23

Measure that is used to evaluate the benefit of a portfolio manager. - Absolute value - Only valid if R2 is .70 or higher. - Plot above or on the Security Mkt Line is good. Anything below is inefficient.

Answer 24

CAPM minus Expected Returns Actual Return - Expected Return = Alpha rp-[rf+(rm-rf)Bp]

Answer 25

A $250,000 insurance on bank deposits. * Per person. * Per Ownership Category * Per institution

Answer 26

A liquidation type of bankruptcy that eleminates consumers debt. Primary Purpose: Liquidation Who?: Individuals & Businesses Does not stop foreclosure, but can delay it

Answer 27

4-6 Months

Answer 28

* Child Support * Alimony * Income taxes less than 3 years past due * student loans * secured debt

Answer 29

The wage-earner plan. Allows debtors to keep their personal assets, but they are obligated to repay their debt over a period. Primary purpose: Repayment Who: Individuals Stops foreclosure

Answer 30

* Can have no more than $419,275 in unsecured debt. * Can have no more than $1,257,850 in secured debts.

Answer 31

Intended for business but also accommodates those who exceed Chapter 13 debt limitations or lack regular income. Primary Purpose: Reorganization Who?: Businesses Stops foreclosure

Answer 32

6 Months - 2 years

Answer 33

Right to know costs and terms of credit

Answer 34

Right to fair opportunity to obtain credit

Answer 35

Right to know whats in your credit file

Answer 36

Right to have billing mistakes resolved

Answer 37

Right to be protected from collection agencies

Answer 38

* Payment History (35%) * Amounts Owed (30%) * Length of credit history (15%) * New Credit (10%) * Credit mix (10%)

Answer 39

Below 580 is poor

Answer 40

580-669 is fair

Answer 41

670-739 is good

Answer 42

740-799 is very good

Answer 43

Any mortgage under $726,200 are considered a conventional mortgage. * Downpayment: 3-20% * Terms: 15-30 years * Insurance: Applies if downpayment is under 20% * Can be fixed or variable rates

Answer 44

Any mortgage over $726,200 will be considered a jumbo mortgage and will carry a higher interest rate.

Answer 45

A mortgage in which a large portion of the borrowed principal is repaid in a single payment at the end of the laon period. Shaped like a balloon. Less at first and grows.

Answer 46

Downpayment: 3.5% - 20% Terms: 15-30 Years Insurance: Always, for 11 years or life of loan

Answer 47

Downpayment: 0% Terms: 15-30 Years Insurance: None Rate: Fixed only Funding Fees: 1% fee upfront, annual fee of .35%

Answer 48

Down payment: 0% Terms: 15-30 years Insurance: None Funding Fees: 2.3% - 3.6% *waived for disabled veterans*

Answer 49

PITI / Gross Household Income 28% an under = PASS

Answer 50

(PITI + Monthly Consumer Debt) / Monthly household Gross Income Pass = under 36%

Answer 51

Monthly COnsumer Debt (non-housing) / Monthly net household income Pass = Under 20%

Answer 52

Acct. may be established if blindness or disability occurred before age 26. Balances of 100k or less are disregarded from FAFSA. Contributions are considered gifts, 17k annual exclusion amount.

Answer 53

Students assets are included at 20%

Answer 54

**Grants** - based on financial need **Scholarship -** money is awarded based on accomplishments **Loans -** Must be paid back **Work-Study** - A job that lets you earn money while in school.

Answer 55

Pell Grants : Awarded to undergraduate students who have exceptional financial need. Federal Supplemental Educational Opportunity Grant (FSEOG): For Undergrads with exception financial needs. Students with lowest EFC's priority to students who receive Pell Grants.

Answer 56

Direct Subsidized Loans - Need Based - Dept of Ed pays interest while you're at school. Direct Unsubsidized Loans - Non Need Based. students pay interest on loans during all periods

Answer 57

* 2 Year Lookback for reported income. * Used to determine Financial Aid.

Answer 58

Income (Parent & Student) + Assets (Parent & Student)

Answer 59

Income (22% Parent to 47%, 50% Student) + Assets (5.64% Parents, 20% Students) ## Footnote Income... Parents = AGI minus an allowance for taxes + Living Expenses. Students= Amount over protected amt $7,600 Assets... IRA's and Home Equity are omitted

Answer 60

Cost of Attendance (COA) - EFC = Financial Need

Answer 61

* Up to $2,500 per eligible student * 40% Refundable (only $1,000 max can go to refund, rest decreases taxes) * 180k MAGI limit for MFJ * 90k MAGI limit for all other filers * 4 Tax Years per eligible students * Can use BOTH credits but cannot overlap expenses * Must be at least half time. ## Footnote First 4 Years of post-secondary education Tuition, required enrollment fees, materials needed for study. 4k of Qualifying Expenses: 1st $2,000 = 100% inclusion 2nd $2,000 = 25% inclusion

Answer 62

* Up to $2,000 credit per return * Not Refundable (only decreases taxes) * 180k MAGI Limit for MFJ * 90k MAGI limit for all other filers * Unlimited # of tax years. * Can use BOTH credits but cannot overlap expenses ## Footnote Post secondary education studies Tuition and fees required for attendance only. 20% of $10,000 of qualifying expenses.

General Principals Flashcards

(94 cards)