Financial Concepts and Formulas Quiz
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Questions and Answers

What is the formula for Assets?

  • Current Assets / Current Liabilities
  • Liabilities + Net Worth (correct)
  • Gross Income - Expenses
  • Net Worth - Liabilities

What is the formula for Net Worth?

  • Insurance Carried / Insurance Required
  • Liabilities + Assets
  • Current Assets / Current Liabilities
  • Assets - Liabilities (correct)

What do Housing Expenses include?

Principal, Interest, Taxes, and Insurance (PITI) ÷ Gross income

What is the formula for Current Ratio?

<p>Current Assets / Current Liabilities</p> Signup and view all the answers

How is the Inflation Adjusted Rate of Return calculated?

<p>[(1 + after tax return) / (1 + inflation rate) - 1] x 100</p> Signup and view all the answers

What is Financial Need?

<p>Cost of Attendance - Expected Family Contribution</p> Signup and view all the answers

How is the Amount Paid by Insurance calculated?

<p>[(Insurance carried / Insurance required) x Loss] - Deductible</p> Signup and view all the answers

What is the Insurance Basis?

<p>Premiums Paid - Dividends</p> Signup and view all the answers

What is the formula for Taxable Income from Insurance Withdrawal/Loan?

<p>Net Cash Value + Existing Loan - Basis</p> Signup and view all the answers

What is Surrender Value?

<p>Cash Value - Existing Loans</p> Signup and view all the answers

How is Annuity Amount Excluded calculated?

<p>Amount Invested / Expected Return x Payment</p> Signup and view all the answers

What does Exclusion Ratio represent?

<p>Amount Invested / Expected Return</p> Signup and view all the answers

How is Bond Conversion Value determined?

<p>(Par / Conversion Price) x Current Market Price of Underlying Stock</p> Signup and view all the answers

What is the Floor Value?

<p>Greater of Value of Bond or Conversion Value</p> Signup and view all the answers

What is Net Operating Income (NOI)?

<p>Gross Rental Receipts + Non-Rental Income - Vacancy and Collection Losses - Operating Expenses</p> Signup and view all the answers

What is Potential Gross Income (PGI)?

<p>Gross Rental Receipts + Non-Rental Income</p> Signup and view all the answers

How do you calculate Effective Gross Income?

<p>Potential Gross Income - Vacancy and Collection Losses</p> Signup and view all the answers

How is Net Operating Income calculated again?

<p>Effective Gross Income - Operating Expenses</p> Signup and view all the answers

What is the formula for Intrinsic Value of Property?

<p>NOI / Capitalization Rate</p> Signup and view all the answers

How is the Intrinsic Value of a Call Option calculated?

<p>Market Price of Underlying Asset - Exercise Price of Option</p> Signup and view all the answers

What is the Time Premium of an Option?

<p>Market Price of Option - Intrinsic Value of Option</p> Signup and view all the answers

What is the Intrinsic Value of a Put Option?

<p>Exercise Price of Option - Market Price of Underlying Asset</p> Signup and view all the answers

What does Coefficient of Variation represent?

<p>Standard Deviation / Average or Mean</p> Signup and view all the answers

How is Standard Deviation of Two Variable Portfolio Shortcut calculated?

<p>Sum of Standard Deviations / 2 - Choose Next Lowest Answer</p> Signup and view all the answers

What is Beta?

<p>(Correlation Coefficient x SD of Stock) / SD of Market</p> Signup and view all the answers

What is Risk-adjusted Return?

<p>Fund's Realized Return / Fund's Beta</p> Signup and view all the answers

How is Geometric Return calculated?

<p>FV = (1 + 1st Period Return) x (1 + 2nd Period Return), 1 = PV, n = Period, Solve for i</p> Signup and view all the answers

What does Holding Period Return measure?

<p>(Sale Price - Margin Loan - Interest Paid on Margin Loan + Dividends - Purchase Price) / Purchase Price</p> Signup and view all the answers

How is Taxable Equivalent Yield (TEY) calculated?

<p>Tax-Exempt Yield / (1 - Marginal Tax Rate)</p> Signup and view all the answers

What is Tax Exempt Yield?

<p>Tax Equivalent Yield x (1 - Marginal Tax Rate)</p> Signup and view all the answers

What is the Zero-Growth Dividend Model?

<p>Price = Dividend / Required Rate of Return</p> Signup and view all the answers

What is the Constant Growth Dividend Model?

<p>Price = Dividend in Next Year ÷ (Required Rate of Return - Growth Rate of Dividends)</p> Signup and view all the answers

What does the Dividend Discount Model Shortcut suggest?

<p>If 1st growth rate is lower than the second growth rate, calculate the price with 2nd growth rate and choose the next lowest answer</p> Signup and view all the answers

How is the Dividend Discount Model Shortcut applied?

<p>If 1st growth rate is higher than the second growth rate, calculate the price with the 2nd growth rate and choose the next highest answer</p> Signup and view all the answers

What is the formula for Current Market Price (no dividends)?

<p>Earnings x P/E Ratio</p> Signup and view all the answers

How is Price / Earnings Growth (PEG) calculated?

<p>P/E Ratio / Annual EPS Growth</p> Signup and view all the answers

What is Return on Equity?

<p>Earnings Available for Common (EPS) ÷ Common Equity (net worth or book value)</p> Signup and view all the answers

What is the Dividend Payout Ratio?

<p>Common Dividends Paid / Earnings Available for Common (EPS)</p> Signup and view all the answers

How is Information Ratio calculated?

<p>(Asset Return - Return on Benchmark Asset) ÷ Standard Deviation of the Asset Return</p> Signup and view all the answers

What is the Margin Formula?

<p>[(1 - Initial Margin %) / (1 - Maintenance Margin %)] x Purchase Price of Stock</p> Signup and view all the answers

What is the Margin Formula Shortcut?

<p>Purchase Price x 2/3 - Look for the next highest number</p> Signup and view all the answers

What is Adjusted Gross Income?

<p>Gross Income - Adjustments</p> Signup and view all the answers

How is Taxable Income calculated?

<p>Adjusted Gross Income - Deductions - Exemptions</p> Signup and view all the answers

What does Taxable Calculation represent?

<p>Taxable Income x Appropriate Tax Rates</p> Signup and view all the answers

How is Tax Liability defined?

<p>Taxable Calculation - Credits - Other Taxes</p> Signup and view all the answers

What is Net Tax Due / Refund?

<p>Tax Liability - Quarterly Payments - Withholding</p> Signup and view all the answers

How is Self-Employment Tax Payment calculated?

<p>Self-Employment Income x 0.1228 - Round Up</p> Signup and view all the answers

What is the Profit Percentage for Installment Sale?

<p>Gross Profit Percentage = Profit / Total Contract Price</p> Signup and view all the answers

How is Gain on Installment calculated?

<p>Installment x Gross Profit Percentage</p> Signup and view all the answers

What is the Partnership Basis?

<p>Cash Contributed + Direct Loans Made to Partnership by Partner + Loans Made to Partnership</p> Signup and view all the answers

How is S Corporation Basis assessed?

<p>Cash Contributed + Direct Loans Made to Partnership by Shareholder</p> Signup and view all the answers

What is the Adjusted Basis of Property?

<p>Cost Basis - Cost Recovery</p> Signup and view all the answers

How is Realized Gain on Exchange calculated?

<p>FMV of Property to be Sold + Boot received - Adjusted Basis of Property to be Sold - Boot Given</p> Signup and view all the answers

What does Recognized Gain on Exchange represent?

<p>The lesser of realized gain or boot received</p> Signup and view all the answers

What is the formula for Adjusted Basis of New Property?

<p>FMV of Property Received - Realized gain + Recognized gain</p> Signup and view all the answers

How is Realized Gain on Residence calculated?

<p>Selling Price - Basis</p> Signup and view all the answers

What is Recognized Gain on Residence?

<p>Selling Price - Basis - Exclusion</p> Signup and view all the answers

What does Section 1245 Look Back entail?

<p>Lesser of Cost Recovery Deductions or Gain (gain = selling price - basis)</p> Signup and view all the answers

How is AMT Payable calculated?

<p>AMT - Regular Tax</p> Signup and view all the answers

What is Alimony Recapture?

<p>1st Year + 2nd Year - ($37,500 + 2 x 3rd Year)</p> Signup and view all the answers

What does Excess Percentage (Social Security Integration) represent?

<p>Base Percentage + Permitted Disparity</p> Signup and view all the answers

How is Self-Employed Qualified Plan Contribution (15%) calculated?

<p>Net Schedule C Income x 12.12%</p> Signup and view all the answers

How is Self-Employed Qualified Plan Contribution (25%) calculated?

<p>Net Schedule C Income x 18.59%</p> Signup and view all the answers

What is Adjusted Gross Estate?

<p>Gross Estate - Funeral Expenses, Administration Expenses, Debts, Taxes, and Casualty Losses</p> Signup and view all the answers

How is Taxable Estate calculated?

<p>Adjusted Gross Estate - Marital Deduction - Charitable Deduction</p> Signup and view all the answers

What does Tax Base comprise?

<p>Taxable Estate + Taxable Gifts</p> Signup and view all the answers

What is Tentative Estate Tax?

<p>(Tax Base - $5 MM Exemption) x 35%</p> Signup and view all the answers

How is Net Estate Tax calculated?

<p>Tentative Tax - Gift Taxes Paid</p> Signup and view all the answers

What does Net Gift Technique - Tax Paid by Donee represent?

<p>(Gift x 35%) / 1.35</p> Signup and view all the answers

What is Net Gift Technique - Adjusted Taxable Gift?

<p>Gift - Tax Paid by Donee</p> Signup and view all the answers

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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Description

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.

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