Personal Finance Final Exam Flashcards

Personal Finance Final Exam Flashcards - Summary

• Interest Rates & Coupon Rates: Coupon rates are fixed, unaffected by rising interest rates.

• APY Formula: APY = (1 + r/n)ⁿ - 1, where r is the interest rate, and n is the number of compounding periods per year.

• Compound Interest Formula: A = P(1 + r/n)^nt, where A is the future value, P is the principal, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years the money is invested or borrowed for.

• Bank Savings Account Disclosure: Banks must publish APY (Annual Percentage Yield) and any fees associated with the account.

• US Economy: The US economy is a mixed market economy, incorporating elements of a command economy.

• US Revenue Source: The largest source of US government revenue is individual income taxes.

• Statutory Expenditures: Statutory expenditures are mandatory and defined by law and regulations.

• Discretionary Expenditures: Discretionary expenditures are debated during the budget process as they are subject to changes.

• Economic Growth Metric: Gross Domestic Product (GDP), ideally growing between 2-3% annually.

• Employment Metric: Measured by the unemployment rate, ideally ranging from 3.5-4.5%.

• Price Stability Metric: Consumer Price Index (CPI), ideally maintaining a 2% annual rate.

• Fiscal Policy: Adjustments to government spending and taxes to affect the economy. Implemented by the government.

• Expansionary Fiscal Policy: Increased government spending (new programs, stimulus checks, etc.) or tax cuts.

• Contractionary Fiscal Policy: Decreased government spending (cutting or freezing programs) or tax increases.

• Federal Reserve Dual Mandate: Maximum employment and stable prices.

• Board of Governors Members: 7 members.

• Federal Open Market Committee (FOMC): Determines monetary policy, orchestrating open market operations.

• FOMC Membership: 7 members from the Board of Governors, the President of the Federal Reserve Bank of New York, and 4 other regional bank presidents on a rotating basis.

• Federal Reserve Funding: Earns interest from government securities.

• Federal Funds Rate (FFR): The interest rate banks charge each other for short-term loans to meet their reserve requirements, set by the FOMC.

• Interest on Reserve Balances (IORB): Interest rate banks earn from the Federal Reserve on funds deposited in reserve accounts.

• Discount Rate: The interest rate charged by the Federal Reserve to commercial banks (lender of last resort). Always above the FFR.

• Monetary Policy Implementation Methods: Adjusting the IORB, buying and selling bonds (open market operations), and adjusting reserve requirements.

• Expansionary Monetary Policy: Decrease IORB, buy bonds, lower reserve requirement.

• Contractionary Monetary Policy: Increase IORB, sell bonds, raise reserve requirement.

• Fractional Banking & Money Creation: Banks are required to keep a percentage of deposits in reserve, lending the rest. This process increases the money supply through multiple rounds of lending.

• Characteristics of Money: Durability, Portability, Divisibility, Uniformity, Limited Supply, Acceptability.

• Stock: A share of ownership in a company.

• IPO: Initial Public Offering of a company's stock to the public.

• Dow Jones Industrial Average (DOW): A share index showing performance of certain stocks.

• Small Cap Company: Below $2 billion market cap, high growth potential, high risk.

• Mid Cap Company: Between $2-$10 billion market cap, moderate growth, medium risk/stability.

• Large Cap Company: Above $10 billion market cap, established/stable, low risk.

• Dividend Yield Formula: Dividend per share / Share Price

• Good Dividend Payout Ratio: 35% - 50%.

• PE Ratio (Price-to-Earnings Ratio): Stock Price / Earnings Per Share (EPS).

• Mutual Fund: A pooled investment vehicle that allows multiple investors to buy various securities.

• ETF (Exchange Traded Fund): A type of mutual fund that is traded on stock exchanges, like stocks.

• Asset Classes: Equities (stocks), and debt (bonds).

• Coupon Payment: Annual interest payment on a bond.

• Average Family College Expenses: $20,000-$30,000 per year.

• COA (Cost of Attendance): The total cost of attending college, including tuition, fees, room and board, and indirect expenses.

• Net Price: The price of college after applying scholarships and grants.

• FAFSA (Free Application for Federal Student Aid): Application to determine eligibility for federal student aid.

• SAR (Student Aid Report): The report that summarizes FAFSA data.

• SAI (Student Aid Index): A calculation used to determine a student's financial need for aid.

• FAFSA Assets: Parent savings accounts, student brokerage account stocks, UGMA accounts, student high-yield savings accounts, parent 529 plans for the student.

• 529 Plan Options: Change beneficiary, rollover into a Roth IRA, pay down student loans.

• Non-qualified 529 withdrawal: Taxes and a 10% penalty apply.

• WUE (Western Undergrad Exchange): A program, possibly.

• Federal Direct Unsubsidized Loans: Need-based for undergraduates, low SAI, no credit check, no cosigner.

• Federal Direct Unsubsidized Loans: Not need-based for undergraduates and above, available to any student for grad or pro degree, no credit check/cosigner.

• Federal Direct PLUS Loans: Loans for graduate/professional students/parents, requiring a credit check.

• Private Loans: Varying terms, no grace period, credit check and cosigner required.

• Standard Repayment Plan: 10-year fixed monthly payments, lower overall cost.

• Graduated Repayment Plan: 10-year repayment, monthly payments increase every two years, higher overall cost.

• Extended Repayment Plan: Must have over $30,000 balance, 25-year repayment, highest overall cost.

• Income-Driven Repayment Plan: Repayment based on 10-20% of discretionary income, 20-25-year repayment.

• Net Pay Formula: Gross Pay - Deductions.

• I-9 Form: Employer and employee verification of identity for employment.

• W-2 Form: Annual wage and tax information summary prepared by the employer.

• W-4 Form: Completed by the employee to indicate tax withholding amounts.