Question

Financial Management and Securities Markets Answer the following questions in paragraph, full-sentence format. Define personal finances and financial planning. Explain the financial planning life cycle. Identify the three stages of the personal-finances planning process Discuss the trend in the U.S. savings rate. Define a subprime loan and explain the difference between a fixed-rate mortgage and an adjustable-rate mortgage. Discuss what can go wrong with a subprime loan at an adjustable rate. Discuss what can go wrong with hundreds of thousands of subprime loans at adjustable rates. Exercise 1: Think of the type of job you’d like to have. Describe the job and indicate how you’d go about getting a job offer for this type of job. How would you evaluate competing offers from two companies? What criteria would you use in selecting the right job for you? Exercise 2: You’re looking forward to taking a month-long vacation to Australia when you graduate from college in two years. Create a budget for this trip after researching likely costs. Determine how much you’ll need for the trip and calculate how much you’d have to save each month to afford the trip.

Answer 1

Personal finance

It refers to making budget or planning of finance or in other word Personal finance is about meeting personal financial goals, whether it’s having enough for short-term financial needs, planning for retirement, or saving for your child's college education. It all depends on your income, expenses, living requirements, and individual goals and desires—and coming up with a plan to fulfill those needs within your financial constraints. But to make the most of your income and savings it's important to become financially literate, so you can distinguish between good and bad advice and make savvy decisions..

Financial Planning

It refers to making planning of financials for the company of personal or we can say that Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

The different stages of the financial life cycle are as under:

1. Teenage Years : The focus of these years is to learn the basics of money and to finish a high school diploma and preparing to further your education.

2. Young Adulthood: The next step in your financial career is to gain and maintain financial independence while pursuing higher education, which may or may not involve a university degree.

3. Starting a Family : Whether your goal is a house full of kids, sharing your home with your spouse, or anything in between, the biggest part of this stage is preparing for the financial responsibility that comes with having a family.

4. Planning to Retire: With retirement in your sights, this stage of life is your largest source of income. Children are typically moving out and diaper bills are considerably lower.

5. Successful Retirement: You've finally reached the time to reap in full what you've sown!

The key component of personal finance & in general, it involves five steps

1. Assessment: A person's financial situation is assessed by compiling simplified versions of financial statements including balance sheets and income statements. A personal balance sheet lists the values of personal assets, along with personal liabilities. A personal income statement lists personal income and expenses.

2. Plan creation: The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market.

3. Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.

Subprime Loan

A subprime loan in general word can be said it is offered to people who do not qualify for a conventional loan, because of factors like low income, a high loan-to-value ratio or a poor credit history. A subprime loan generally carries a higher interest rate than a conventional loan.

These type of loan is available to potential borrowers with poor credit scores. Such people are referred to as subprime borrowers. Borrowers considered risky to lenders can receive financing for a home mortgage through a subprime loan, but the loan generally carries a higher interest rate.

Difference between a fixed-rate mortgage and an adjustable-rate mortgage

Fixed rates mortgage is the type that the interest rate is set when you take out the loan and will not change whereas with the adjustable rate mortgage, the interest rate may go up or down as per the changes occur in MCLR or any other benchmark set before offering the said loan to any individually or constitution

What can go wrong with a subprime loan at an adjustable rate

the following subprime loan can become non payable when the rate goes high as we know that the subprime loan is that loan which is offered to borrowers with poor credit scores they were considered to risky for lenders as in the case of changes occure in interest rate int will become hard to pay for borrower in case rate hike & the borrower credit score are lower in subprime loans