Personal Finance Fill-In Flashcards
(150 cards)
1
Q
What is the business equation? Or how do we calculate a profit, loss, or break even?
A
Revenue-expenditure=Profit
2
Q
What does the SEC stand for?
A
Securities and Exchange Commission
3
Q
What is a Bull Market
A
a strong growing stock market; when money is flowing into stocks driving the market up
4
Q
what is a bear market
A
a drop of 20% in the stock market
5
Q
a drop of 10% in the stock market
A
a correction
6
Q
Why do companies issue stock?
A
to raise money for growth and expansion
7
Q
why do people buy stock?
A
To earn a high rate of return for long term goals; to stay ahead of inflation
8
Q
What is the biggest danger to your savings?
A
high inflation (It erodes your purchasing power)
9
Q
credit cards are basically like a loan-T/F
A
True.
10
Q
How do we calculate a percent return on an investment?
A
(New-Old)/Old times 100
11
Q
How can we build good credit by age 22?
A
Apply for a credit card and make a small purchase per month. LOW DEBT TO INCOME RATIO!
12
Q
Who benefits from HIGH interest rates?
A
savers; they earn or get paid the high interest
13
Q
Who benefits from LOW interest rates?
A
borrowers; they pay back the low interest
14
Q
What is leverage?
A
debt or borrowing; a leveraged buyout is using debt.
15
Q
paying down debt
A
deleveraging
16
Q
What do capital gains taxes apply to?
A
sale of a stock, home, or a small business
17
Q
What is the best advice for saving?
A
Live within your means. Be disciplined, save early and often, prioritize your spending, and keep track of your spending. Your SPENDING is more important than your income.
18
Q
something pledged as security for repayment of a loan, to be forfeited in the event of a default. The car is collateral for a car loan; the home for a home loan.
A
a collateral
19
Q
a tax in which the tax rate increases as one’s income rises (average tax bracket=22%, max tax bracket=37%)
A
a progressive tax
20
Q
a tax that proportionately hurts the poor more than the rich (ie. flat tax, social security tax, etc.)
A
regressive tax
21
Q
family: income- spending
government tax revenue- spending
business= “business equation”
revenue-expenditure=profit
A
a BUDGET
22
Q
a mix of investments held by a person or organization. A mix of stocks, bonds, cash, property, gold, crypto, etc.
A
a portfolio
23
Q
getting paid interest on interest, “the 8th wonder of the world”
A
compound interest
24
Q
rule of 70? How do we calculate it?
A
an equation that calculates how long something will double, like an investment or GDP. Divide 70 by the yearly return on an investment based on compound interest. (answer: usually in YEARS)
25
Do bonds compound?
NO. Fixed income.
26
When in our lives should we take the most risk?
when you are young, have a 10+ years until your financial goal is due; In your 20s to early 50s. (long term time horizons)
27
What is the benefit of more risk?
higher risk= higher potential rates of return
28
a cash payment to a share holder simply for owning the stock
dividend
29
to own stocks from multiple companies, across multiple industries, and even different countries
--> to be DIVERSIFIED
30
What 3 things are conspiring against your financial interests?
taxes, fees, and inflation
31
How do we calculate real interest?
real interest= nominal interest-inflation
32
Do you owe taxes on interest?
Yes; It is subject to the income tax.
33
What are payroll taxes and when are they charged?
social security and medicare taxes. they are charged if you are one a company's payroll (hourly wages or salary)
34
What is a marginal tax bracket?
Whatevcer tax bracket you're in is your marginal tax rate. It is the percentage taken from your next dollar earned of taxable income above a pre-defined income threshold.
35
How do you calculate taxes?
https://www.youtube.com/watch?v=I9HLr5lMF5U&ab_channel=JohnBouman
36
What is your nest egg?
your retirement savings; your life savings
37
How much does one need in retirement?
75% of their working income; many say $2mn in your nest egg
38
Social security was never intended to be _____?
Your main source of income in retirement; It's to supplement your life savings. (true in democratic socialist northern Europe too)
39
What is the current medicare tax?
1.45% employer, 1.45% employee, total 2.9% (Full 2.9% if self employed/own your own business)
40
What taxes are SMALL businesses subject to?
income taxes, not corporate taxes
41
What federal tax bracket does the average American fall into?
The 22% bracket
42
What tax bracket does the average Californian fall into?
The 10.23% bracket
43
What is the social security tax rate?
6.2% for the Employer and another 6.2% for the Employee (Full 12.4% if self employed/own your own business)
44
Which investments are subject to the Federal Income Tax?
interest payments from bonds, CDs, money markets and savings accounts
45
What do interest paying "investments" include?
savings accounts, CDs, money markets, all bonds, bills, and notes except municipal bonds (munis are TAX FREE)
46
What is the capital gains tax? How do we calculate it?
15% if owned more than a year. Less than an year- the tax is calculated based on the income tax bracket (average- 22%)
47
How do we calculate a government budget surplus, balanced budget, or budget deficit? Who does this apply to?
Tax revenue- government spending (T-G)
Applies to the GOVERNMENT
48
How do we calculate spending or saving? Household budget?
Income - Spending
49
What are the financial time horizons terms?
short term: 0-5 years
medium: 5-10 years
long: +10 years
50
draw the systems that banks use.
https://docs.google.com/drawings/d/1zsQZXostAIqZwP27XljvjcZtl0_tMQpq89C-Z4rSgtI/edit?usp=sharing
51
a measure of how quickly you can convert something to cash
liquidity
52
a check that cannot be processed because the account holder has insufficient funds in their account to back the check. Banks return or bounce these checks, rather than honoring them, and banks charge the check writers fees. Credit scores go down.
a bounced check
53
What is the historical return of "Burying your money in the backyard?"
0% nominally, -2% real rate of return if 2% inflation: real= nominal - inflation; -2=0-2
54
What is the historical yearly return of a savings account?
2% nominal
55
What is the historical yearly return of a Certificate of Deposit (CD)?
4-5% nominal
56
What is the historical yearly return of Money Markets?
4.5-6% nominal
57
What are blue chip stocks?
large household named companies: all Dow companies
58
How does one calculate market capitalization? What is market cap?
Market cap measures the value of a company. It's the minimum price another company would have to pay to buy another company. ***Market cap= share price times number of shares.
59
What is an equity?
STOCK
60
What are securities?
stocks and bonds
61
Do we tax revenue?
NO. We tax profit.
62
What is the corporate tax rate?
21%
63
Are credit cared interest rates very high or very low?
Very high
64
What percent is the normal down deposit on a home loan?
20%
65
What do we call a home loan?
mortgage
66
What is the average yearly return in the stock market?
10%
67
When are taxes due every year? (tax day)
April 15th
68
What has been the avg inflation rate in the last 50 years?
2-3%
69
What is the maximum tax bracket or the tax rate for the highest US earners?
37%
70
Are interest payments you earn subject to the state income tax?
Yes.
71
What is the DIVIDEND tax rate?
15% (20% if in top tax bracket)
72
What are the only bonds that are tax free?
municipal bonds
73
What is APY?
Average Percent Yield
74
What is the historical return of a checking account?
0%
75
What is the average american income tax?
22%
76
What is the max income tax bracket?
37%
77
What is the average California Income tax bracket?
10.23%
78
total social security payroll percentage?
12.4%
79
what is the employee social security contribution percentage?
6.2%
80
What is the total medicare payroll contribution (employer and employee or a self employed person/owner of their own business)?
2.9%
81
What is the employee medicare payroll contribution?
1.45% (the employer pays the other 1.45% for a total of 2.9%)
82
Capital Gains Tax Percentage (1+year)
15%
83
Capital Gains tax Percentage (<1 year)
one's marginal tax bracket (the average American is in the 22% tax bracket)
84
Dividends tax percentage
15%
85
2023 corporate tax rate
21%
86
2023 Average American Income
$59,428
87
2023 Average Social Security Monthly Benefit
$1,705
88
Percent change formula
New-Old/Old times 100
89
What does the SEC stand for?
Securities and Exchange Commission
90
What investments are subject to the capital gains tax?
Sale of Stocks, primary house, and business
91
What are 3 things that work against your investing future?
taxes, fees, and inflation
92
What does FDIC stand for and up to how much do they insure per bank?
Federal Deposity Insurance Corporation insuring up to $250,000
93
Historically how much do savings account yield?
2%
94
Historically how much do Certificates of Deposit (CD's) yield?
4-5%
95
Historically how much do Money Market's yield?
4.5-6%
96
how quickly an investment can be converted to cash
liquidity
97
How are savings accounts, CDs, money markets, and bonds taxed?
All taxed by income tax
98
Who owns corporations?
The shareholders
99
What are the 2 stock markets in the US?
New York Stock Exchange (NYSE)
NASDAQ
100
Which stock index measures the 30 largest US companies?
Dow Jones Industrial Average (DJIA)
101
Which stock index measures the 30 largest US companies?
Dow Jones Industrial Average (DJIA)
102
Which stock index measures the 500 largest US companies?
Standard and Poors (S&P 500)
103
Which stock index measures many small cap stocks?
Russell 2000
104
Which Stock index consists of all US based companies listed on both stock markets?
Total Stock Market Index
105
Formula for market capitalization?
Share price times number of shares
106
a company goes into the stock market and buys back its own stocks; share prices go up
stock buyback
107
stock options? Define.
A company allows its employees to buy its stocks at a discounted price; exercising options is when you can sell the stock options.
108
a company gives shares of stocks to its employees rather than cash as a bonus
stock bonuses
109
If 2-for-1 split, the number of shares doubles but share price is cut in half.
--> stock split
110
Large cap, household name companies. All 30 DJIA stocks
blue chip stocks
111
What are 3 ways to make money in the Stock Market?
1. Buy low, sell high
2. Dividends
3. Sell short (then short cover to finish)
112
Cash payments to shareholders just for owning stock
dividends
113
When are dividends paid?
Paid quarterly and paid out of a company's after-tax profits
114
What does DRIP stand for?
Dividend Reinvestment Program
115
What id the Dividend Yield Formula?
Dollar amount of dividend divided by share price times 100 ($dividend/share price *times 100)
116
market is booming (going up)
bull market
117
market goes down at least 20%
bear market
118
Market goes down at least 10%
Market Correction
119
Define dollar cost averaging.
The practice of systematically investing equal amounts, spaced out over regular intervals, regardless of price. "Time in the market is more important than timing the market."
120
Define recession.
6 straight months (2 quarters) or longer of economic contraction; economy actually sinks (NEGATIVE GROWTH)
121
Stocks that go up during the ups of a business cycle and down during the downturns (ex: Honda, Apple, Boeing)
cyclical stocks
122
Goes up during the downturns and down during the upturns in the market (ex: Netflix, McDonalds, AT&T)
Defensive stocks/counter-cyclical stocks
123
stocks that grow faster than the market average, very volatile (ex: Tesla, Amazon, AMD)
growth stocks
124
stocks that have been oversold as their prices have been beat down. Tend to be quality companies going through a rough patch. (ex: Procter&Gamble, Johnson&Johnson, Colgate-Palmolive)
value stocks
125
how much a company earns divided by the number of shares. Calculated 1 time per year.
earnings per share
126
Measures the valuation of a stock
PRICE EARNINGS RATIO (P/E)
<14-15 undervalued
=14-15 fairly valued
>14-15 overvalued
127
a company's price to earnings ratio using the past 12 months earnings per share (TTM= trailing 12 months)
Trailing P/E
128
Today's share price divided by next year's PROJECTED earnings per share
Forward P/E
129
If a company's forward P/E is LOWER than the company's trailing P/E is that good?
Yes.
130
a ratio that divides the P/E ratio by the Growth Rate of the company.
PEG ratio of 1 means a fairly valued stock
PEG less than 1: undervalued
PEG greater than 1: Overvalued
especially above 1.50
PEG ratio
131
Measures a company's share price VOLATILITY
Beta of 1: share price changes in line with the broader market (S&P 500)
Beta less than 1: share price is less volatile than the broader market (S&P 500)
Beta greater than 1: signal more share price volatility leading to higher highs in up market and lower lows in down market
beta
132
debt-to-asset ratio
divide a company's debt to its assets
>1: company has been financed primarily by debt.
Investors prefer less debt-asset ratios.
133
What type of bond is tax free?
Municipal bonds
134
Why do governments and corporations issue bonds?
Governments issue bonds to finance budget deficits.
Corporations issue bonds to finance growth and expansion.
135
Synonyms for corporate bonds?
Corporate paper, corporate debt
136
formula for bond yield
amount a bond pays/price one pays for the bond *times 100
137
Where already issued bonds are bought/sold
Secondary market
138
Highest rated type of bond
AAA bonds
139
Worst rated or lowest rated type of bond
High Yield bonds or Junk Bonds
140
Bond Prices and Yields
INVERSE relationship btwn bond prices and bond yields. It doesn't matter what changes first: bond prices or bond yields.
*With demand changes first:
DEMAND is same as price of bonds but inverse from bond yields.
141
debt of borrowing. "a leveraged buyout"
Leverage/Leveraging
142
How long does it take for Treasury Bills (T-Bills) to mature or expire?
up to 1 year
143
How long does it take for treasury notes to mature?
1-10 years
144
How long does it take for treasury bonds to mature?
10+ years
145
How long does on average it take for a market to bounce back after a crash?
3.5 years
146
How do you calculate a company's REVENUE?
Price *times Quantity sold
147
What is the single biggest cost of running a business and how much?
Labor is 70-75% of the cost of running a business.
148
In order, what are the most liquid to least liquid accounts at the local bank?
1. Savings/checking accounts (ATM/Debit cards)
2. Money Markets (access to your money with some limitations. NO ATM?Debit card).
3. CDs (time deposits. 90% of people don't break their contract early.-to get access to your money)
149
Why do investors buy bonds?
investors to buy bonds to EARN A FIXED INCOME and FIXED INTEREST RATES
150
What is the 2023 Maximum Social Security Monthly?
$3,627
