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HACE 3200: Exam 1
Flexibility
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The ability for your plan to change as your situation or goals change
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Liquidity
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the relative ease and speed with which you can convert non cash assets into cash
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Protection
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Your ability to meet the unexpected large expenses without destroying your plan
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Minimization Of Taxes
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Your ability to pay as little as possible to Uncle Sam
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Estate Planning
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planning for your eventual death and the passage of your wealth to your heirs
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Inflation
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An economic condition in which rising prices reduce the purchasing power of money
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Compound Interest
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Interest paid on interest
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Diversification
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acquisition of a variety of different investments instead of just one to reduce risk
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Personal Balance Sheet
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A statement of your financial position on a given date
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Assets
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what you own
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Monetary Assets
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cash of other assets that can be easily liquidates
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Investment Assets
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Assets that are invested for the future
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Retirement Plans
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Investments made by you or your employer to save money for retirement
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Liabilities
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Something that is owed or borrowing of money
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Net Worth or Equity
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A measure of the level of your wealth. Determined by subtracting debt from assets
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Fair Market Value
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What an asset could be sold for rather than what is cost or what it will be worth sometime in the future
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Tangible Asset
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A physical asset, such as a house or car
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Insolvent
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The condition in which you owe more money than your assets are worth
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Personal Income Statement
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A statement that tells you where your money has come from and where it has gone over some period
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Variable Expense
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An expense over which you have control.
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Fixed Expense
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An expense over which you have no control
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Budget
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A plan for controlling cash inflows and outflows
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Current Ratio
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Monetary Assets / Current Liabilities
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Month's Living Expenses Covered Ratio
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Monetary Assets / ( annual living expenses/ 12)
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Debt Ratio
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Total Debt / Total Assets
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Long-term Debt Coverage Ratio
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Total income available for spending / Total long-term debt payments
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Savings Ratio
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Income available for saving and investments / Income available or living expenses
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Time Value of Money
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The concept that a dollar received today is worth more than a dollar received in the future and, therefore, comparisons between amounts in different periods cannot be made without adjustments to their values
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Reinvesting
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Taking money that you have earned on an investment and plowing it back into that investment
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Rule of 72
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A helpful investment rule that states you can determine how many years it will take for a sum of money to double by dividing 72 by the annual growth rate
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Discount Rate
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the interest rate used to bring future dollars back to the present
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Annuity
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A series of equal dollar payments coming at the end of each period for a specific number of periods
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Compound Annuity
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An investment that involves depositing an equal sum of money at the end of each year for a certain number of years and allowing it to grow
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Amortized Loan
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A loan paid off in equal installments
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Perpetuity
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An annuity that continues forever
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