Final Exam Notes The final exam is worth 40 of your overall grade and has a total of 200 points Chapters 14 19 50 questions worth two points each similar to the other two mid terms Topics to Review Inflation and the impact on investments Understand the nature of preferred stocks vs common stocks vs bonds including various types of bonds which are riskier vs safer types of credit ratings how call features work Review steps one takes before making investments e g getting your emergency fund set up Review types of orders for stocks e g market vs limit vs stop Understand various risks associated with investments including systematic and non systematic risk Know which investments are lower in risk vs high risk Review beta Understand the relationship of movements in interest rates and the impact on the fair market value of bonds e g if interest rates fall the value goes up Know in general how each investment category performs over long periods of time stocks vs bonds vs cash Dividends Understand how dividends are declared and paid for common stock preferred stocks including how stock splits work Review taxability of dividends Review the various types of stocks growth income cyclical etc Review the drivers behind a stock s price e g earnings Be prepared to calculate investment returns Review and be prepared to calculate Price to Earnings Ratios PE and Earnings per Share EPS High growth companies typically have high PEs low growth companies have low PEs Review tax aspects of investments including methods of calculating basis for stocks and mutual funds All of the following are taxable including dividends capital gains distributions and corporate bond interest Municipal bond interest is tax free be prepared to convert a muni bond tax free rate to a taxable equivalent rate If an investment is held over 12 months then the capital gain is considered long term and taxed at lower rates than ordinary income Note that net capital losses after offsetting all short term and long term capital gains and losses that can be deducted in any given year is limited to 3 000 Foreign investments and risk associated with foreign investments How one invests internationally mutual funds and ADRs Differences between global funds which include US investments and foreign mutual funds which include only international stocks Be prepared to calculate a bond yield and yield to maturity using your calculator You will also need to know if you buy a bond at a discount to par which is less than 1 000 the yield to maturity will be more than the current yield since you will get the full 1 000 at maturity Conversely if you buy a bond at a premium to par e g more than 1 000 the yield to maturity will be lower than the current yield since you will only get 1 000 at maturity For mutual funds review the pop quiz posted in the modules There will also be several questions from mutual fund handouts provided to you by the testing lab The materials will include a prospectus mututal fund annual report and from various financial institutions that are commonly sent to investors Using the handouts you will be asked questions such as Refer to the prospectus from XYZ mutual fund page 12 Did this fund beats its benchmark index over the last 5 years You will receive financial material throughout your lifetime and I want to make sure that you as a future college graduate can read and comprehend this material Review various types of real estate investments including REITs how they perform typical payout percentages Review passive activity loss rules passive activity gains are taxable passive activity losses are first netted against gains if there is a net loss then it must be carried forward to future tax years and is available to offset future passive activity gains Understand how gold prices move in relation to common stocks Review the retirement chapter noting expected income sources and expenses Also review social security materials and tax rates Understand the difference between a Roth and Traditional IRA Understand types of investments that are and are not appropriate for IRAs Study the retirement planning process Review taxability of life insurance excluded from income tax included in estate tax computation Review various types of wills and specific trusts such as spendthrift and revocable living trusts Review how assets are titled and the nature of each e g tenants in common Understand what happens if you die without a will Review gift tax laws and the amount of an estate exempt from estate tax Review types of real estate investments including direct and indirect investments like REITs equity mortgage and hybrid Review tax issues associated with real estate Review investments in other vehicles e g commodities and the associated risk Review personal financial issues associated with relationships especially marriage Know things to consider before marriage and related matters like pre nup agreements Comprehensive Section on Chapters 1 19 25 questions worth four points each Please refer to previous mid term review notes which are included in Chapter Modules 7 and 13 Material in all chapters will be included in the questions much of which but not all was previously included in prior mid term exams