Personal Financial Planning Final Exam Notes PDF

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Comprehensive notes that cover all vocabulary, definitions, and other topics discussed through out the year and on the final. This was all taken written in class and then transferred to a word document....

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Personal Financial Planning Final Exam Notes Premium  Fee for firms assuming risk Risk  Uncertainty Peril  Cause of a possible loss Hazard  Increases the likelihood of a loss Pure Risk  Insurable risk, accidental and unintentional Speculative Risk  Uninsurable risk, chance of loss/gain (gambling) Risk Management Techniques  Risk Avoidance, Risk Reduction, Risk Assumption, Risk Shifting Liability  Legal responsibility for financial cost of another person's losses or injuries Negligence  Failure to take ordinary or reasonable care Strict Liability  Person is held responsible for intentional or unintentional actions Vicarious Liability  Person held responsible for the actions of another person Personal Property Floater  High value items Household Inventory  Documentation Medical Payments Coverage  Payment for minor accidental injuries on your property Umbrella Policy  Supplements basic personal liability coverage Actual Cash Value  Payment you receive is based on the current replacement cost of the damaged or lost item less depreciation Replacement Value  You receive the full cost to repair or replace the damaged or lost item, depreciation is not considered Bodily Injury Liability  Covers the risk of financial loss due to legal expenses, medical expenses, lost wages, and other expenses Medical Payments Coverage  Covers the cost of health care for persons injured in your automobile Uninsured Motorist Protection  Covers the cost of injuries to you and your family if your vehicle is hit by a person without insurance

No Fault Insurance  System intended to provide fast, smooth methods of paying for damages without taking the legal action to determine fault Collision Coverage  Pays for damages to your automobile regardless of who is at fault Subrogation  Collecting from other driver's insurance first Comprehensive Physical Damage  Covers damage to your vehicle that is not caused by a collision Hospital Expense Insurance  Pays for hospital room, boards, and other charges Surgical Expense Insurance  Pays for surgeon's fee of an operation Physician Expense Insurance  Pays for physician's care such as office visits, lab tests, x/rays Major Medical Expense Insurance  Cover expenses for a serious injury or long term illness Comprehensive Major Medical Insurance  Low deductible offered without a separate, basic plan Hospital Indemnity Policies  Pays cash benefit when hospitalized Dental Expense Insurance  Covers exams, cleaning, x/rays, fillings, etc. Vision Care Insurance  Covers exams, contact lenses, and glasses Part A  Hospital Insurance Part B  Medical Insurance Part C  Medicare Advantage Plan Part D  Medicare Prescription Drug Benefit Stock Life Insurance Companies  Owned by shareholders Mutual Life Insurance Companies  Owned by policyholders Temporary Insurance  Protection for a specified period of time Multiyear Level Term  Pay same premium for life of policy Conversion Option  Can exchange term policy for whole life policy without medical examination Decreasing Term  Premium stays same, but coverage decrease as you age Return of Premium

 Policy refunds every penny of the premiums paid if one outlives the policy term Permanent Insurance  Pay premium as long as you live Limited Payment Policy  Pay premiums for a stipulated period or until you reach a specified age Variable Life Policy  Minimum death benefit guaranteed but cash value is not guaranteed Adjustable Life Insurance Policy  Whole life that you can change coverage on by changing the premium payments or period of coverage Universal Life  Can pay premiums at any time in almost any among Group Life Insurance  Insures large number of persons under a single policy without medical examinations Endowment Life Insurance  Provides coverage, and pays specified sum to insured even if still living at the end of the endowment period Credit Life Insurance  Used to repay personal debt if borrower dies Policy Reinstatement  Reinstates lapsed policy if not yet turned in for cash Grace Period  Allows 31/day late payment without penalty Automatic Premium Loan  Cash value is used to pay premium is not paid within grace period Nonforfeiture Clause  Keep accrued benefits if you drop the policy Incontestability Clause  Company cannot dispute its validity after the policy has been in force for awhile Suicide Clause  During first two years Inflation Risk  Investment may not keep pace with the inflation rate Interest Rate Risk  Investment may not keep pace with bond prices Business Failure Risk  Bad management or products affect stocks|bonds|mutual funds Market Risk  Prices fluctuate because of behaviors of investors Global Investment Risk  Changes in currency affect return on investment Asset Allocation  Process of placing your assets among several types of investments to lessen your investment risk Time Factor

 Longer you are invested the better your opportunity for increasing returns Age  Type and style of investments should change with age Closed End Funds  Fixed number of shares, only can purchase shares from another investor who is willing to sell Open End Funds  Shares are issued and redeemed by the investment company at the request of investors, can buy and sell at NAV NAV  (Value of Fund's Portfolio - Liabilities)|Shares Outstanding Load Fund  Investors pay a commission every time they purchase shares No Load Fund  Investors pay no sales charge up front Contingent Deferred Sales Load  Charged upon withdrawal of funds Management Fee  Charged yearly based on a percentage of the funds asset value 12b 1 Fees  Annual fee to defray distribution and marketing costs of the fund Expense Ratio  Consists of the different management fees and additional fund operating costs for a specific mutual fund Aggressive Growth Funds  Buy stocks in small, fast/growing companies Equity Income Funds  Invest in stock of companies with a long history of paying dividends Global Stock Funds  Buy stock in companies in the US and other countries Growth Stock Fund  Buy stock in companies with higher/than/average revenue and earnings growth Index Funds  Buys stocks that mirror an index International Funds  Invest in foreign stocks sold in securities markets throughout the world Large Cap Funds  Invest in stocks of companies with capitalization of $10 billion or more Mid Cap Funds  Invest in companies with total capitalization of $2 to $10 billion Regional Funds  Buy stock in companies in a specific region of the world Sector Funds  Buy stock in companies in a particular industry such as biotech Small Cap Funds  Buy stock in lesser known companies with a capitalization of less than $2 billion

Socially Responsible Funds  Avoid investing in companies that produce harmful products High Yield (Junk) Bond Funds  Buy corporate bonds that are higher risk and higher yield Intermediate Corporate Bond Funds  Buy investment grade corporate debt that matures between 5 and 10 years Intermediate US Bond Funds  Buy treasury securities with maturities of 5/10 years Long Term Corporate Bond Funds  Buy investment grade corporate bond issues with maturities of more than 10 years Long Term US Bond Funds  Invest in US Treasury securities with maturities of more than 10 years Municipal Bond Funds  Invest in municipal Bonds that provide investors tax/free interest income Short Term Corporate Bond Funds  Invest in investment grade bond issues with maturities of 1/5 years Short Term US Government Bond Funds  Invest in US Treasury securities with maturities of 1/5 years World Bond Funds  Buy bonds of foreign companies and governments Asset Allocation Funds  Invest in various asset classes with precise amounts within each type Balanced Funds  Invest in both stocks and bonds Funds of Funds  Invest in shares of other mutual funds Lifecycle Funds  Initially invest in more risk oriented securities and become increasingly conservative as a retirement date approaches Money Market Funds  Invest in CD's government securities, and other safe and highly liquid investments Income Dividends  Earning a fund pays to shareholders from dividend and interest income Capital Gains  Occur when shares are sold at a price greater than what you paid Capital Gain Distributions  Payments to shareholders from sale of securities held by the fund Turnover Ratio  Measures the percentage of the fund that has been replaced in one year Syndicate  Temporary association of individuals or firms organized to perform a specific task that takes a large amount of capital Limited Partnerships

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General partner who has unlimited liability and sells participation units to the limited partners Real Estate Investment Trusts  Trade shares on stock exchanges or over the counter Vesting  Right to at least a portion of the benefits you have accrued under an employer pension plan, even if you leave before you retire Will  Legal declaration of a person's mind as to the disposition of his or her property after death Intestate  Die without a will Simple Will  Leaves everything to your spouse Traditional Marital Share Will  Leaves half to spouse and half to children Exemption Trust Will  Passes to your spouse except for an amount equal to the exemption, which passes into a trust Stated Dollar Amount Will  Should use percentages, not actual dollar amounts Holographic Will  Will that you write, date, and sign Formal Will  Usually prepared with attorney's assistance Statutory Will  Type of formal will on a pre/printed form Codicil  Document that explains, adds, or deletes provisions in your existing will Revocable Trust  You retain the right to end the trust or change its terms during your lifetime, does not provide tax shelter Irrevocable Trust  You cannot change the terms or end the trust...