management 4

  1. divisions of a bank
    corporate: loans and deposits btwn businesses

    retail: loans and deposits btwn individuals

    investment: help customers, businesses and gov raise money
  2. Fixed mortgage
    investment rate will remain the same for the life of the loan

    long term, 15-30 years

    use if plan to stay in home more than 5 years, want a loan with a low down payment, want consistent payments 
  3. Adjustable mortgage 
    lower interest rate for an initial period then rate fluctuates

    good for short term, 30 year loan with annual interest rate anjustments after 5 year fixed rate period

    good for those who want lower initial monthly payments or planning on moving in less than 5 years
  4. cause of foreclosure problem with the housing system
    adjustable mortgage, people couldn't pay after the initial low rate was raised 
  5. other mortgage costs
    closing costs: 3-5% or total loan including attourney fees, title insurance, appraisals, tax
  6. mortgage points
    aka discount points

    paid before closing in exchange for a lower interest rate on the mortgage 
  7. down payments on mortgages
    usually required and are 20% of purchase price 
  8. personal debt to income 
    credit cards and mortgage payments should not amount to more than 36% of your gross monthly income 

    amt spent to service debt each month/ your income 
  9. credit card interest rate determinants
    borrowers credit history

    prime rate (amount banks charge best customers)

    penalty rates and special interest rate offers 
  10. credit score composition
    range 300-850

    • payment history- pay on time 35%
    • amount owed- max out cards and lower score 30%
    • length of credit history 15%
    • new credit- more cards causes a lower score 10%
    • types of credit used-not just credit cards better 10% 
  11. interest
    annual percent of principal that is charged to the borrower

    simple or compounded 
  12. simple interest
    interest calculated only on the principal amount 

    on the portion of the principal amount that remains unpaid
  13. compounded interest
    interest paid on the principal and on the accumulated interest that has been earned by the principal 
  14. prime rate
    interest rate banks charge preferred customers
  15. time value of money
    better to have the money in your hand today rather than in the future 
  16. 401k
    • retirement savings account
    • pre tax contributions made by employee and employer matches 3-5%

    tax deferred unless you cash out 
  17. 401k invested in
    mutual funds, stocks, bonds, money market investments
  18. options on 401k if you leave you job
    • leave in the former plan
    • roll into new employer plan
    • cash out and pay penalties 
  19. 403b
    • tax deferred retirement plan
    • offered to employees of non profit organizations 
  20. individual retirement account
    ITA  tax deferred retireent plan usually opened by individual

    traditional, roth, SEP, simple
  21. traditional IRA
    pay income tax when you take the money out of retirement

    use this if you expect to be in a lower tax bracket when you retire 
  22. roth IRA
    pay income taxes when invested and not during retirement 

    best if expect to be in same or higher tax bracket 
  23. Simplified employee pension (SEP)
    type of traditional IRA for self employed or small business 

    • business can invest money fo the employee 
    • tax free until the money is taken out at retirement
    • up to 25% of income may be contributed 
  24. Simple IRA
    • for small businesses and self employed
    • employees are allowed to contribute and employers
    • hae higher contribution limits
  25. CD
    certificate of deposit
    savings certificate entitling bearer to receive interest

    has maturity and specified fixed interest rate (1mo-5 years)
  26. Mutual funds
    investment vehicle that is made of a pool of funds (stocks, bonds, money markets)

    operated by money managers who invest the funds capital and attempt to produce income for the investor
  27. Bond
    • debut investment 
    • investor loans money to entity that borrows funds for defined period 
    • fixed interest rate
    • used by companies to finance projects
  28. stock
    shareholders buy ownership in a corporation (return depends on market)

    common stock: owner voting rights and eligible to receive dividents

    Preferred stock: no voting rights and guranteed regular divident paymetns
  29. annuity
    financial product sold by financial institutions

    contract between you and financial institution designed to meet long range goals (retirement)
  30. risk tolerance 
    degree of potential loss an investor can accept 

    how much you are willing to loose

    younger investors can tolerate more risk 
  31. ways to reduce risk
    dollar cost averaging: boying a fixed dollar amount of a certian investment on a regular basis regardless of share price 

    portfolio diversification: wide variety of investments 
Card Set
management 4