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PFP
| Question | Answer |
|---|---|
| For buying a car, the monthly payment should not be more than __ of monthly net income | 20% |
| Why is the amount of new vehicles being leased lowering? | high interest rates and higher cost of cars |
| Close ended leases | At end of lease return the car and if it is not abused or over mileagle allowance there is no additional cost |
| The least payment is based on four variables | 1. Capitalized Cost 2. Forecast Residual value of car at end of lease 3. Money factor (similar to interest rate on car loan) 4. lease term |
| Types of housing | Single-Family homes, condos, and rentals |
| Benefits for owning a home | Tax savings from deducting property taces and mortgage interest inflation hedge: build wealth as home appreciates in value Provides stable place to live less likely to move if house is owneded |
| Loan to value ratio | if it is 80% then down payment is 20% |
| If down payment is less than 20% private mortgage insurance | could be required |
| Mortgage points are | Fees charged by lenders at the time they grant a mortgage loan it can reduce interest |
| Why do we use credit | to avoid paying cash for large outlays to meet a financial emergency for convivence for investment purposes |
| improper uses of credit | - help meet basic living expenses make impulse purchases purchase nondurable goods overspend consistently only paying the minimum payment |
| Build a good credit history by | Not getting overextended fulfilling all crediting terms paying on time notifying crediors if unable to pau being truthfuk opening checking and saving accounts get a credit card and make small purchases |
| 5 C's of credit | Character - willingness to abide by terms of loan Capacity - ability to service the debt Collateral - own something of value to support loan capital - unencumbered assets available condition - impact of current economy on loan |
| Debt safety ratio | monthly consumer credit payment / monthly take home pay |
| For monthly consumer credit payments, they should not exceed what percent of monthly net income. Whats the goal percentage | 20% - 15% |
| Truth in lending act | Lenders must disclose annual percentage rate |
| ADB - Average daily balance | methof of computing finance charges by applying interest charges to the average daily balanve |
| investing is the | long term process of purchasing securities where stability/value/expected return are highly uncertain |
| yearly savings = | Future amount of money desired/ future value annuitiy factor |
| Common stocks are | a form of equity , they represent an ownership interest in a coproation |
| Return on stocks in two forms | Dividends paid (Varies from 0 to 6%) and Appreciation in share price |
| Reailized appreciation on assets held more than | one year |
| Dividends are taxed as capital gains with a maximum rate of | 20% |
| Bonds are | obligations of corporation to pay principle and interest to the bond holder. I owe yous of the issuer |
| For bonds, interest paid is the state rate on the bond times | the face value of the bond typically paid twice a year. Taxed as ordinary income, maximum federal income tax rate is 37% |
| For bonds, rates go up | value goes down and vice versa |
| Preferred stocks have stated (fixed) dividend rates that must be paid before | any common stock dividend is paid. |
| callable means | designating a bond that can be paid off earlier than the maturity rate |
| Convertible bonds are like other bonds, pay interest twice a year and return principle and maturity date BUT | along the way if the bondholder desires the bonds may be converted to common stock referred to as Hybrid Securities |
| Mutual funds are | professionally managed portfolio of stocks bonds and other investments. Return varies based upon the market and the type of investments selected by manager |
| Exchange traded funds (EFTs) | designed to track a basket or index of equity securities. They may be traded throughout the day. |
| Exchange traded notes (ETNs) | Senior, unsecured, unsubordinated debt securities |
| ETNS face | market risk and risk of default by issuing bank |
| In real estate, returns | come from rents, capital gains and favorable tax benefits |
| Capital market | long term securities with maturities of more than one year |
| Money Market | low risk, short term securities with maturities of less than one year |
| Primary market | new issues available for the first time |
| Secondary market | Trades previously issued securities (Stock exchanges, nasdaq, otc market) |
| When stock prices are rising | Bull market |
| When stock prices are falling | Bear market |
| Market order | trade now at best available price |
| limit order | trade when a specificed price or better is reached |
| stop loss order | sell if stock drops to a certain price used to limit losses |
| Rate of return | (Ending value-beginning value+income)/beginning value |
| Margin requirement | amount of cash you have to put ip to borrow the stock (most recent requirement is 50% for common stock) |
| Short sale transaction is made in anticipation of a | decline in the price of a stock. |
Created by:
abbypennewell