Questions and Answers
What is the formula for Assets?
What is the formula for Net Worth?
What do Housing Expenses include?
Principal, Interest, Taxes, and Insurance (PITI) ÷ Gross income
What is the formula for Current Ratio?
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How is the Inflation Adjusted Rate of Return calculated?
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What is Financial Need?
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How is the Amount Paid by Insurance calculated?
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What is the Insurance Basis?
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What is the formula for Taxable Income from Insurance Withdrawal/Loan?
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What is Surrender Value?
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How is Annuity Amount Excluded calculated?
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What does Exclusion Ratio represent?
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How is Bond Conversion Value determined?
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What is the Floor Value?
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What is Net Operating Income (NOI)?
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What is Potential Gross Income (PGI)?
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How do you calculate Effective Gross Income?
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How is Net Operating Income calculated again?
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What is the formula for Intrinsic Value of Property?
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How is the Intrinsic Value of a Call Option calculated?
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What is the Time Premium of an Option?
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What is the Intrinsic Value of a Put Option?
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What does Coefficient of Variation represent?
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How is Standard Deviation of Two Variable Portfolio Shortcut calculated?
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What is Beta?
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What is Risk-adjusted Return?
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How is Geometric Return calculated?
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What does Holding Period Return measure?
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How is Taxable Equivalent Yield (TEY) calculated?
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What is Tax Exempt Yield?
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What is the Zero-Growth Dividend Model?
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What is the Constant Growth Dividend Model?
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What does the Dividend Discount Model Shortcut suggest?
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How is the Dividend Discount Model Shortcut applied?
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What is the formula for Current Market Price (no dividends)?
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How is Price / Earnings Growth (PEG) calculated?
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What is Return on Equity?
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What is the Dividend Payout Ratio?
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How is Information Ratio calculated?
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What is the Margin Formula?
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What is the Margin Formula Shortcut?
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What is Adjusted Gross Income?
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How is Taxable Income calculated?
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What does Taxable Calculation represent?
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How is Tax Liability defined?
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What is Net Tax Due / Refund?
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How is Self-Employment Tax Payment calculated?
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What is the Profit Percentage for Installment Sale?
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How is Gain on Installment calculated?
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What is the Partnership Basis?
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How is S Corporation Basis assessed?
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What is the Adjusted Basis of Property?
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How is Realized Gain on Exchange calculated?
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What does Recognized Gain on Exchange represent?
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What is the formula for Adjusted Basis of New Property?
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How is Realized Gain on Residence calculated?
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What is Recognized Gain on Residence?
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What does Section 1245 Look Back entail?
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How is AMT Payable calculated?
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What is Alimony Recapture?
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What does Excess Percentage (Social Security Integration) represent?
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How is Self-Employed Qualified Plan Contribution (15%) calculated?
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How is Self-Employed Qualified Plan Contribution (25%) calculated?
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What is Adjusted Gross Estate?
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How is Taxable Estate calculated?
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What does Tax Base comprise?
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What is Tentative Estate Tax?
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How is Net Estate Tax calculated?
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What does Net Gift Technique - Tax Paid by Donee represent?
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What is Net Gift Technique - Adjusted Taxable Gift?
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Study Notes
Financial Concepts and Formulas
- Assets defined as the sum of liabilities and net worth.
- Net Worth calculated by subtracting liabilities from assets.
- Housing Expenses determined by dividing principal, interest, taxes, and insurance (PITI) by gross income.
- Current Ratio measures liquidity, calculated as current assets divided by current liabilities.
- Inflation Adjusted Rate of Return formula accounts for inflation, expressed as [(1 + after-tax return) / (1 + inflation rate) - 1] x 100.
- Financial Need assessed by subtracting expected family contribution from the cost of attendance.
- Insurance Payments calculated using the formula: [(Insurance carried / Insurance required) x Loss] - deductible.
- Insurance Basis determined by subtracting dividends from premiums paid.
Income and Valuation
- Taxable Income from Insurance Withdrawal includes net cash value plus existing loan minus basis.
- Surrender Value represents cash value after deducting existing loans.
- Annuity Exclusion Ratio calculated by dividing the amount invested by expected return, then multiplying by payment.
- Bond Conversion Value reflects the ratio of par to conversion price multiplied by current market price of underlying stock.
- Net Operating Income (NOI) derived from gross rental receipts plus non-rental income, subtracting losses and operating expenses.
- Potential Gross Income (PGI) calculated by adding gross rental receipts and non-rental income.
- Effective Gross Income is PGI minus vacancy and collection losses.
Investment Metrics
- Intrinsic Value of Property determined by dividing NOI by the capitalization rate.
- Intrinsic Value of a Call Option is the difference between the market price of the underlying asset and exercise price.
- Time Premium of an Option calculated as the market price minus intrinsic value of the option.
- Coefficient of Variation measures risk per unit of return, computed as standard deviation divided by mean.
- Beta assesses systematic risk using the formula (correlation coefficient x SD of stock) / SD of market.
- Geometric Return can be calculated with the formula FV = (1 + 1st period return) x (1 + 2nd period return).
Tax and Estate Planning
- Adjusted Gross Income calculated by subtracting adjustments from gross income.
- Taxable Income determined from adjusted gross income, deducting exemptions and deductions.
- Tax Liability assessed by subtracting credits and other taxes from the taxable calculation.
- Net Tax Due or Refund is derived from tax liability minus quarterly payments and withholding.
- Recognized Gain on Residence equals selling price minus basis and exclusion.
Gift and Estate Taxes
- Tax Base is defined as the sum of taxable estate and taxable gifts.
- Tentative Estate Tax is calculated as (Tax Base - $5 MM Exemption) x 35%.
- Net Estate Tax represents tentative tax minus any gift taxes already paid.
- Net Gift Technique determines adjusted taxable gift by factoring tax paid by donee.
Self-Employment Taxes
- Self-Employed Qualified Plan Contribution varies by income bracket, calculated as a percentage of net Schedule C income (15% or 25%).
- Social Security Integration includes excess percentage calculated from base percentage plus permitted disparity.
These summaries encapsulate essential financial formulas and concepts in a clear and concise manner, aiding in study and understanding.
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Test your knowledge on essential financial concepts and their formulas. This quiz covers topics such as assets, net worth, housing expenses, and more. Assess your understanding of how to calculate various financial metrics and their implications.