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51 Cards in this Set
- Front
- Back
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Lee recently purchased his house for $400,000. He put down 30% and financed the balance over 30 years at 15%. How much will Lee’s monthly mortgage payment be?
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$3540
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Lee recently purchased his house for $400,000. He put down 50% and financed the balance over 30 years at 8%. How much interest will he pay over the life of the loan?
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$328,310.00
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Kevin and Jennifer are ready to retire. They want to receive the equivalent of $40,000 in today’s dollars at the beginning of each year for the next 50 years. They assume inflation will average 3% over the long run, and they can earn 11% (compounded annually) on their investments. What lump sum do they need to invest today to attain their goal?
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$541,817.00
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Kevin and Jennifer are ready to retire. They want to receive the equivalent of $40,000 in today’s dollars at the beginning of each year for the next 50 years. They assume inflation will average 3% over the long run, and they can earn 9% (compounded annually) on their investments. What lump sum do they need to invest today to attain their goal?
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$683,824.00
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Cindy purchased 100 shares of a closed-end fund for $24 per share 20 years ago. Today she sold all 100 shares for $10,000. What was her average annual compound rate of return on this investment before tax?
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7.39%
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Donna expects to receive $60,000 in 8 years. Her opportunity cost is 20% compounded monthly. What is this sum worth to Donna today?
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$12,275
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What is the 6 step PROCESS of financial planning?
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1. Establish the relationship.
2. Gather informaiton and set goals 3. Evaluate and analyze financial circumstances 4. Develop recommendations and alternatives 5. implement the plan 6. Monitor and modify |
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What characteristic is most chosen for planners?
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1. Being trustworthy
2. understands situations 3. keeps informed |
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6 STEPS fo financial planning
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1. Establosh and Define Relationship
2. Interview and Gather data and determine goals 3. Evaluate and analyze 4. Develop Recommendations and alternatives 5. Implement the plan 6. Monitor and revise the plan |
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Name some certifications
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CFP- certified financial planner
ChFC- Chartered Financial Consultant PFS- Personal Financial Specialist CFA CLU RFP |
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In what ways can financial planners get paid?
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- Hourly
- Commission - Commission Based - Fee - Mixture |
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Use good
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you can touch it, feel it
ex: buying a car |
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Experience Good
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you have to experience it to fully know if you like it
ex: hair cut |
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Credence Good
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no touching, no feeling and even after you buy it you aren't sure if you like it
ex: financial services |
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Life Cycle Theory
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People are happiest when they have a steady income coming in instead of alot of money now and none later.
- people can choose to do certain things and change their future - the concave utility curve |
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Pareto Criterion
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Policy is good if it makes one person better off without making anyone worse off.
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What are some issues with the Pareto Criterion?
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1. Someone is always wose off
2. Sometimes making a few worse off makes others better off |
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Kaldor Hicks Criterion
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The idea is that the winners can compensate losers the policy is good- even if they don't compenstae
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What are two goals of Policy?
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1. provide a marketplace where resources go to their most efficient use.
2. maximize availabilty within society, but consider utility |
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Who reports to the NASD
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Brokers- they are responsible for making suitable investment recommendations
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Who reports to the SEC
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Money Managers- selecting individual stocks and bonds.
Wealth Managers/Financial Planners- makes investment and non-investment recommendations |
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What is the Act of 1934
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created the SEC-regulates the secondary trading of securities between persons often unrelated to the issuer.
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What did the Sarbanes-Oxley Act do?
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reinforces top mgmt responsibilities in regards to internal audits and information circulation.
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What is the investment advisers act of 1940?
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advisors advice ect are negotiated and relate to the purchase and sale of securities traded
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Fiduciary
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an individual or company holding anothers assets has legal authority and duty to make decisions regarding financial matters on behalf of the other party
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Prospect Theory
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people are risk avoiders. Losses hurt more than gains.
People are risk takers |
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What are the typical expectations of people?
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They want high returns and low risk
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In classical economics
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people are rational
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in behavioral economics
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people are normal.
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What is overconfidence?
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telling clients you can do something becasue you are a professional or have a magic wand.
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Saliency
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tendency to overweight events or factors uppermost in our minds. We overreact to new information
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Framing
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The way a question is posed can mean everything
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Anchoring
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sequential forcasts are anchored to previous forecasts
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Mental Mathmatics
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be careful- most of the time it isn't true what you think. The loss of a dollor is twice as painful as the gain of a dollar
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What is Confirmation Bias
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You only see/hear the information that confirms your decision.
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anticipatory regret
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"i got out of the market last year. I want to get back in but I know the moment I do it will go down."
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What is some qualitative information to get from clients
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- life history
- principles and values - attitudes - transitions - goals - objectives |
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What important techniques should you know for interviewing?
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- Develop rapport
- Gain Trust - Show interest, professionalism, empathy, and authority - listen for clues - gather intelligence - restate for clarity |
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What is the elevator speech?
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short and to the point- quick overview of you
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Call to Action
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Conversations to distrub or compel. (to get them to use you)
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Data Gathering
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conversations to glean information and interrogate (used to see who the client is.)
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Risk coaching
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not tolerance or profiling
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action plan
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conversations to negotiate the implementation (the after plan)
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Ongoing conversations
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Communications to manage expectations on an ongoing basis
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What are the three basic financial stmts?
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- net worth
- cash flows - changes in net worth |
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balance sheet
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financial position at one point in time
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formula for net worth
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Assets - liabilities
assets: use market value liabilities: debt |
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What is the purpose of financial stmts
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- track your progress toward financial goals
- evaluate financial performance over a period of time |
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Solvency Ratio
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Total Net Worth (total liabilities)/Total Assets
tells you whether you could payoff all liabilities if you liquidated assets. |
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Liquidiy Ratio
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Liquid Assets / Total Current Debts
-measures ability to pay current debts with existing liquid assets. |
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Savings Ratio
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Cash Surplus / Income after Taxes
- percentage of after tax income being saved |
