Eco110PersonalFinanceandFinancialDecisionMaking

FinalExamReviewSheet
Chapter1PersonalFinancialPlanninginAction

Whatpersonalandeconomicfactorsaffectfinancialdecisions?
Whatistheruleof72?Howisitapplied?
Calculaterateofincreaseinprices
o Useinflationratestocalculateexpenses
Whoishelpedbyinflation?Whoishurt?
Calculateearningsfromsavings
Whatdoestimevalueofmoneymeasure?
Howdoyoucalculatefuturevalue?Presentvalue?
o Usingchartstoevaluate(Exhibits1Athrough1D)
o Singleamount
o Seriesofdeposits
Whataredifferenttypesofrisk?

Chapter2MoneyManagementSkills

Whatarethe3majormoneymanagementactivities?
Howlongshouldyoukeepdifferenttypesofdocuments?Forexample:
o Creditcardstatements,mortgagedocuments,retirementaccount
information,taxrecords,housingrecords
Whatdoweusepersonalfinancialstatementsfor?
Assets(liquid),Liabilities,andnetworth
Cashinflow,cashoutflow
o Surplus/deficit
Ratios
o Liquidityratio
o Debtratio
o Currentratio
o Debtpaymentsratio
o Savingsratio
Howcanyouincreasesavingseasily?
Fixed/variableexpenses

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Chapter3TaxesinYourFinancialPlan

Whatarethe4majorcategoriesoftaxes?
Calculatetaxableincome
Whatisthedifferencebetweentaxexemptandtaxdeferrable?
o Itemizedvs.standarddeduction
o Taxdeductionvs.taxcredit
o Marginalvs.averagetaxrates
o Taxavoidancevs.taxevasion
Comparingdifferenttaxsituations
o Familyvs.marriedvs.singletaxpayer
o Whatarethemainsourcesofhelpfortaxpreparation?
o HowcanoneavoidanIRSaudit?
o 1040EZ,1040A,1040
o Commontaxsavingmethods?
Calculatingannuallostincomethroughlostsavings
Retirementaccountdeductions
o Taxsavingscalculations/Futureandcurrent

Chapter4FinancialServices:SavingsPlansandPayment
Accounts

Whatarethemajorcategoriesoffinancialservices?
o Whatfactorsplayintoaconsumerschoiceofbank?
Whataredifferenttypesofsavingsplans?
o Moneymarketaccountvs.moneymarketfund
o Importantfactorstosavingsplans
Whatfactorsaffectchoiceofcheckingaccounts?
Savingstotals
o Compoundedannually/Singledepositvs.seriesofdeposits
Presentvalueofdeposit
o Singlevs.seriesofdeposits
Annualpercentageyield
Comparingtaxfreeyieldtotaxableyield
o Whichwillhavebetterreturnonsavings?
FDICcoveragewhatdoesitentail?
CalculatepenaltiesforearlywithdrawalfromCD
Calculatinginterest(withrespecttooverdraftfees)
o Annualfees
Bankreconciliationcalculateadjustedbalance

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Chapter5ConsumerCredit:Advantages,Disadvantages,Sources,
andCosts

Whatisconsumercredit?Whyisitimportant?Whataretwotypes?
o Namethetwogeneralrulesofmeasuringcreditcapacity
Usingmarketvaluesandnetworthofhometodetermineborrowing
ability
Whatdoesitmeantolivewithinyourmeans?
o Calculateadebtpaymenttoincomeratio
o 20%rule?
Computefinancecharges
o CalculateAPR(onetimeormonthly)
Whatisacreditbureau?Whatshouldyoudoifyouaredeniedcredit?
Whattwomainthingsshouldyourememberwhenyouborrowmoney?
Cashadvancesvs.creditcardpayments
o Calculateacashadvancefee
o CalculatemonthlyinterestgivenAPR
Calculatinginterest
o Calculatingaddoninterest,monthlypayments,andAPR
Whatshouldyoudoifthereisabillingerroronyourstatement?Whatif
someonestoleyouridentity?Howcanyoubetterprotectyourselfonline?
o Chapter7vs.Chapter13bankruptcy

Chapter6ConsumerPurchasingStrategies&WiseBuyingof
MotorVehicles

Whatisthedifferencebetweenaservicecontractandwarranty?What
kindsofwarrantiesarethere?
Comparingcreditpaymentstopayinginfull
Comparingyearly(single)paymenttofuturevalue(presentvalue)of
savings
Calculatingunitprices
Comparebuying/leasingcar
o Whatshouldyoudowhenbuyingausedcar?Whatmightreduce
thelifeofyourcar?
o Variableversusfixedcostsofoperation
o Operatingcostpermile
Whattendstocauseconsumerproblems/complaints?Howarethey
typicallyresolved?
Differencebetweenarbitrationandmediation
o Classactionsuits/Whenmightthisbehelpful?

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Chapter7SelectingandFinancingHousing

Comparecostsofrenting/buyinghome
o Whatitemsonaleasearenegotiable?
o Earnedinterestonsecuritydeposit
o Condominiumfees
Propertytaxes,insurance,condoassociationfee,mortgage
payment
o Pros/consofowning
Affordablecostofhome
o Affordablemortgageamount,payment
o Comparetotalpayments
o Compareinterestrates
Whataffectsqualificationformortgage?
Whymightonewantanadjustableratemortgage?
Refinancingeffectonmonthlypayments,totalpayments
Whatshouldyoudowhenyouwanttosellyourhome?Whataffects
sellingprice?
o Howshouldyoudecidebetweensellingonyourownorusingan
agent?

Chapter8HomeandAutomobileInsurance

Whatisinsurance?Whatisapremium?
Riskvs.Perilvs.Hazard(examplesmighthelpyourememberdifferences)
Examplesofrisks
o Personalrisk(disability,illness,death,retirement)
o Propertyrisk
o Liabilityrisk
Whatiscoveredinhomeownerinsurance?Whatisanumbrellapolicy?
o Building/Livingexpenses/PersonalProperty/PersonalLiability
Whatisrentersinsurance?
o Twotypes(broad,comprehensive)Whatisthedifference?
Howmuchhome(orrenter)coveragedoyouneed?
Automobileinsurancewhatiscovered?
o Bodilyinjury/MedicalPayments/Uninsuredmotorist
o Propertyvs.Collision(doyouknowthedifference?)
o Comprehensive(differencefrompropertyand/orcollision)?
Whatisnofaultsystem?
Whatfactorsinfluencehowmuchautoinsurancecosts?

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Chapter9HealthandDisabilityIncomeInsurance

Whyishealthanddisabilityinsurancerelevantforfinancialplanning?
o Keydifferencebetweenmosttypesofhealthinsuranceandother
typesofinsurance(e.g.,auto,life,house):healthinsuranceoften
paysfornormal(notcatastrophic)events
Threewaysonecanpurchasehealthinsurance(notincludingObama
care):Group,Individual,COBRA
Types:Basic(hospital,surgical,physician,majormedical)/Longterm
care
Keyterms:coinsurance,copayment,deductible,outofpocketlimit,stop
loss,etc.
Typesofplans:private,BCBS,HMO,PPOPOS
Governmenthealthcare(notincludingObamacare):Medicare,Medicaid
Disabilityinsurance(types),benefitsvs.costs
OverviewofreasonsfortheveryhighmedicalcostsinU.S.

Chapter10FinancialPlanningwithLifeInsurance

Whatislifeinsurance?
o Wholevs.Term.Purposes(reasonsfor)lifeinsurance?
o Term+Annuitytoapproximatewhole
Howtoestimatehowmuchlifeinsuranceyouneed?
o Differentmethods
o Whenindoubt,usetheeasymethodwithamultipleof5to10
Twotypesoflifeinsurancecompanies:
o participatingandnonparticipating(differences/advantages/
disadvantages)
Twomaintypesoflifeinsurance(whole,term).(differences/
advantages/disadvantages)
o Thereisathirdtype(universallife)butitisnotwidelyutilized
Keyprovisionsinatypicallifeinsurancepolicy?
Whattolookforfromwhomyoubuylifeinsurance?
FinancialPlanningwithAnnuities(costsvs.benefits)
o Whybuyanannuity?
o Immediate&Deferredannuities
o Fixedvs.Variableannuitiesdoyouknowthedifference?

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Chapter11InvestingBasicsandEvaluatingBonds

Keythingstodowhenpreparingyourinvestmentprogram
o Budget
o Evaluateyourrisktolerance,
o Reducecreditcarddebt,establishemergencyfund,etc.
Relevanceoftimevalueofmoneytoinvesting
Factorsaffectingthechoiceofinvestments(safetyvs.riskfactors)
Keyriskfactors(inflation,interestrate,businessfailure,market)
Howcandiversification(assetallocation)reduceinvestmentrisk?
U.S.Governmentbonds,bills,notes,TIPS;
Stateandlocalbonds(differencebetweengeneralobligationandrevenue
bonds)
Corporatebonds
Inverserelationshipbetweeninterestratesandmarketvalueofabond
Bondratingsandratingagencies

Chapter12InvestinginStocks

Keyfeaturesofcommonandpreferredstock
Whatisequityfinancing?Dividend?Stocksplit?
Returnfromowningstock:dividendincome&priceappreciation
Classificationofstocksinvestments(bluechip,cyclical,etc.)
Keynumericalmeasuresthatinfluenceinvestmentdecisions(earningsper
share,priceearningsratio,projectedearnings,dividendyield,etc.).
Knowformulaeandhowtocalculate
Isbookvaluethesameasacompanysstockmarketvaluation?
Basicsofbuying&sellingstock(markets,brokeragefirms,etc.)
o Marketorder,limitorder,stoplossorder
Longtermvs.Shortterminvestmentstrategies
Whatissellingshort?

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Chapter13InvestinginMutualFunds

Whatisamutualfund?Whydoinvestorspurchasemutualfunds(say,
insteadofstocks)?Advantages/disadvantages?
Classificationofmutualfunds(closedend,ETF,openend).Knowthe
differences.
Loadvs.noloadfunds;redemptionfee(backendload).Whywould
firmschargefrontendand/orbackendloads?Whyaretheimplication
foraninvestorsreturn?
Expenseratiohowdoesitmatter?
Typesofmutualfunds(stock,bond,hybrid/balanced/fundoffunds,
lifecyclemoneymarket)
Whattoconsiderwhenpickingmutualfunds(retirementvs.investment)
Managedvs.Indexfundsprosandcons
Returnoninvestment(incomeandcapitalgainwithmutualfunds)
Taxissues;howdoesturnoverratiomatter(thinkabouttaximplication)?

Chapter14StartingEarly:RetirementandEstatePlanning

Timevalueofmoneyandtheimportanceofstartingearly(Exhibit141
doyouunderstand?)
Timevalueofmoneyandestimatingretirementexpenses(planfor
emergencies,healthexpenses,etc.).Howmuchmoneywillyouneedina
typicalyearinretirement?Howmuchmoneydoyouneedtoallocateto
majorfinancialcontingencies(e.g.,hospitalization,nursinghome,etc.)
MajorSourcesofRetirementincome(employerpension,publicpension,
personalretirementplans,annuities);socialsecurityisapublicpension
plan
Whatisvesting?
Twotypesofemployerplans:definedbenefitplananddefined
contributionplan(knowthedifference)
Typesofindividualretirementaccounts
WhatisthedifferencebetweenregularIRAandRothIRA?
EstatePlanning:whatisit?Whywouldapersondoit?
Wills(types:simple,traditionalmaritalshare,exemptiontrust,stated
amount).
Whatisprobate?Executorvs.guardian
Whatisalivingwill?
Trusts(types:creditshelter,disclaimer,living,testamentary)
Estatetaxes(fourmajortypesoftaxes)

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