Exam 2 | AAEC 2104 - Personal Financial Planning, Quizzes of Business Finance

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TERM 1 dependent DEFINITION 1 person you support financially(that you can put on your tax return) TERM 2 total or gross income DEFINITION 2 sum of all taxable income from all sources TERM 3 active income DEFINITION 3 wages, salaries and tips from a business TERM 4 portfolio or investment income DEFINITION 4 form securities such as dividends and interest TERM 5 passive income DEFINITION 5 from activities in which the taxpayer does not actively participate such as rental income and royalties TERM 6 Adjusted Gross Income (AGI) DEFINITION 6 the taxable income from all sources minus specific deductions, but before the standard/itemized deductionsAGI = gross income - adjustments TERM 7 specific adjustment for AGI DEFINITION 7 savings for retirement accounts(IRA, 401k)student loan interest paymentsmoving expensesalimony paymentshealth savings account TERM 8 itemized deduction DEFINITION 8 the taxable deduction the taxpayer calculates themsleves which includes these expenses:medical/dental expensestax expenseshome mortgage/ investment interest paymentsgifts to charitycasualty/ theft lossmiscellaneous deductible TERM 9 standard deduction DEFINITION 9 the government's best estimate of what the average person would be able to deduct by itemizing--remains the same regardless of income level TERM 10 exemption DEFINITION 10 a deduction you can take on your return for each person supported by the income listed on your tax return TERM 21 base income tax DEFINITION 21 intersection of filing status and taxable income in federal income tax tables TERM 22 steps to calculating taxes(7) DEFINITION 22 determine total taxable income (Gross income = sum of income from all sources) calculate AGI (Gross income - adjustments) subtract deductions (subtract itemized or standard) claim exemptions (subtract your exemptions) calculate taxable income (AGI - deductions - expenses) calculate base income tax (use taxable income in tax tables) subtract credit from base income taxes TERM 23 Five General Tax Strategies DEFINITION 23 maximize deductions look to capital gains and dividend income shift income to family members in lower tax brackets receive tax-exempt income defer taxes to the future TERM 24 Four Steps to Smart Buying DEFINITION 24 differentiate want from need do your homework make your purchase maintain your purchase TERM 25 leasing a car DEFINITION 25 ideal for financially stable, want new car every few years, drive less than 15,000 miles annually, good credit, no down paymentdont want an open-end lease** TERM 26 lemon laws DEFINITION 26 if car cannot be fixed after 4 attempts and if car is out of service for 30 days during first year or for the first 12,000 miles--entitled to full refund TERM 27 housing options DEFINITION 27 house: most potential for capital appreciation cooperatives/condominiums: homeowner's fee, planned unit developments-- apartments or other rental housing TERM 28 co-op versus condo DEFINITION 28 co-op: apartment complex owned by corporation in which residents are stock holders--homeowners fee; less potential for capital appreciationcondo: apartment complex that allows individual ownership of units but joint ownership of land/facilites TERM 29 costs of home ownership DEFINITION 29 one-time costs recurring costs maintenance and operating costs TERM 30 one-time costs DEFINITION 30 entire price of house or down-payment(typically 20%) closing/settlement costs--3 to 7% of cost of house TERM 31 recurring costs DEFINITION 31 monthly mortgage payments PITI--total of your monthly principal, interest, taxes and insurance TERM 32 buying a house advantages DEFINITION 32 longer stay and appreciation itemized taxes forced savings TERM 33 how much will bank lend me? DEFINITION 33 financial history--steadiness of income, credit report ability to pay appraised value of home TERM 34 calculating mortgage limit--three methods DEFINITION 34 PITI : monthly gross income--maximum of 28% for lenders PITI + other debt payments(take 10+ months to pay off) : monthly gross income--student loans, car loans, etc.; max of 36% appraised home value--max of 80% of this value to be lent TERM 35 sources of mortgages DEFINITION 35 S&L's and commercial banks credit unions, mutual savings banks mortgage banker mortgage broker TERM 46 ARM vs. FRM DEFINITION 46 ARM: low interest rate in early years, larger loan b/c PITI is lower, reset interest ratesFRM: better in general, payments never change, allows for control and planning TERM 47 specialty mortgage loan options DEFINITION 47 balloon payment: small monthly payments for 5-7 years, then entire loan due---they suck graduated: payments set in advance, rising for 5-10 years, then level off--risky growing equity: designed to let homebuyer pay off mortgage early--no advantage compared to FRM shared appreciation: borrower receives below-market interest rate, lender receives a portion of future appreciation interest only: interest only payment for initial set period, then pay both interest and principal for remainder of loan TERM 48 mortgage loan length decisions (15 or 30 year) DEFINITION 48 prepayment opportunities size of monthly payments interest rates' TERM 49 15 yr versus 30 yr mortgage DEFINITION 49 15: lower interest rate , discipline to force savings, equity built faster,30: more financial flexibility, affordability, TERM 50 private mortgage insurance DEFINITION 50 protects the lender in the event that the borrower is unable to make mortgage payments TERM 51 medicaid DEFINITION 51 government medical insurance plan for needy families TERM 52 flexible spending accounts DEFINITION 52 employer-sponseredmedical savings plan that allows each employee to have pre-tax earnings deposited into a specially designated account for the purposes of paying health care bills. the employee can withdraw funds to offset unreimbursed medical expenses. any not used by end of year is lost--good thing to have TERM 53 health savings account DEFINITION 53 allows individuals to pay for current health expenses and save for future qualified medical/retiree health expenses on a tax-freebasis. do not lose at end of year TERM 54 COBRA DEFINITION 54 given health insurance coverage for 18 months to 3 years after leaving the company(depending) TERM 55 peril DEFINITION 55 an event(natural or man-made) that causes a financial loss-- fire, theft, etc. TERM 56 first type of homeowner's insurance DEFINITION 56 fire TERM 57 six basic homeowner's policies DEFINITION 57 -cover more than the home--liability insurance and rentersHO-1,2 and 3 cover basic policies for homeownersHO- 4 covers renters insuranceHO-6 covers condo ownersHO-8 covers older homesall divided into two sections TERM 58 named perils DEFINITION 58 covered by HO-1 and HO-2a type of insurance that covers a specific set of perils TERM 59 open perils DEFINITION 59 covered by HO-3covers all perils except those specifically noted as excluded TERM 60 Section 1 of HO's DEFINITION 60 property insurance4 main coverages-- A: dwelling B: other structures C: personal property D: loss of use TERM 71 three factors in cost of HO's policy DEFINITION 71 location of home--crime/ regional perils type of structure--older homes have more problems to insure level of coverage and policy type--more coverage, more $$ TERM 72 discount and savings methods DEFINITION 72 higher deductible = discounts security system/ smoke detector = discounts multiple policies(home and auto) = discounts annually paid premiums = discounts direct writer( lower rates b/c no agents) TERM 73 Personal Automobile Policy (PAP) parts DEFINITION 73 Part A: liability coverage--protection for you if you are liable for injury or property damage caused by your car and covers court costs, legal defense feesPart B: medical expense coverage--pays medical bills/funeral expenses for you and passengersPart C: uninsured motorist's protection--protects you from damage caused by drivers w/o liability insurancePart D: damage to your car-- collision insurance providing coverage for theft/ damage of car TERM 74 standard PAP exclusions DEFINITION 74 intentional injury/damage using a vehicle w/o consent using vehicle w/ fewer than 4 wheels using another person's vehicle regularly using own vehicle but not listed on policy carrying passengers for a fee street racing TERM 75 no-fault insurance DEFINITION 75 type of auto insurance in which company protects you in case of an accident regardless of who is at faultlimits medical expenses TERM 76 determinants of cost of auto insurance DEFINITION 76 type of car how much car is used personal characteristics(teen boys pay more) driving record where you live credit score TERM 77 steps for filing a claim in a car accident DEFINITION 77 get help for injured/ move car to safe place get witnesses cooperate with police take BAC of other driver if suspicious write down recollection of accident dont admit guilt/ sign anything get copy of police report call insurance agent keep records/meet with lawyer TERM 78 steps to improve credit score DEFINITION 78 pay bills on time track spending/make budget keep financial life in order TERM 79 investment versus speculation DEFINITION 79 investment--an asses that generates a return(stocks and such)speculation--an asset whose value depends solely on supply and demand; higher level of risk(baseball cards, etc.) TERM 80 option DEFINITION 80 a security that gives its owner the right to buy or sell an asset--at a specified price over a specified period TERM 81 steps to starting your investment program DEFINITION 81 pay yourself first make investing automatic take advantage of uncle sam and your employer windfalls(inheritance, salary bonus, tax refund, etc) make 2 investment months in the year TERM 82 marginal tax rate DEFINITION 82 rate you pay on the next dollar of earnings TERM 83 tax-deferred basis DEFINITION 83 investment grows free of taxes, as well as, the money you invest until you liquidate your investment TERM 84 what is better than ordinary income with taxes? DEFINITION 84 capital gain and dividend income TERM 85 investment choices DEFINITION 85 lending investments: savings accounts and bonds, which are debt instruments issued by corporations and the governmentownership investments: preferred stocks and common stocks which represent ownership in a corporation, along with income-producing real estate TERM 96 prospectus DEFINITION 96 a legal document that describes a securities issue and is made available to potential investors TERM 97 secondary markets-- stocks DEFINITION 97 stocks--markets in which previously issued securities are tradedorganized exchange or over-the-counter marketeasier for sellers to find buyers, vice versa TERM 98 two major organized exchanges DEFINITION 98 NYSE and AMEX--both considering continuous markets TERM 99 secondary markets-- bonds DEFINITION 99 bonds--tend to be for smaller, individual investorstransact business directly--not organized exchangesbrokers TERM 100 international markets DEFINITION 100 around for centuries;international stocks traded through ADR's TERM 101 regulation of security markets DEFINITION 101 general regulation by SEC(federal agency) and self- regulation TERM 102 specialist DEFINITION 102 an exchange member who oversees the trading in one or more stocks in order to maintain a fair and orderly market TERM 103 order characteristics DEFINITION 103 order size--round lots(groups of 100 shares) and odd lots(less than 100 shares) time period for which the order will remain outstanding--day orders(expires at end of trading day during which it is made), open orders(remain effective until filled or canceled), discretionary account(gives your broker the power to make trades for you) TERM 104 types of orders DEFINITION 104 market orders--buy or sell immediately at the best price available limit orders--trade is to be made only at a certain price or better stop orders--sell if the price drops below a certain level or to buy if the price climbs above a certain level TERM 105 short selling DEFINITION 105 the more the price drops, the more money you make; borrow stock from broker and then sell it--buy it back for less than the sold price TERM 106 types of brokers DEFINITION 106 -full-service brokers--paid commission based on sales volume; persona service and advice but for higher price- discount and online brokers--execute trades but do not provide advice; use for large purchases TERM 107 cash versus margin accounts DEFINITION 107 cash: investors pay in full for their security purchases, with the payment due within 3 business days of the transactionmargin: investors borrow a portion of the purchase price from the broker TERM 108 street name DEFINITION 108 registered securities remain in the broker's custody and are a computer entry in your name; more convenient to sell and may have maintenance fee for inactivity