Client Investment Recomendations 2
Ways in which a Section 529 differs from a Coverdell ESA include 1. tax-free distributions when the funds are used for qualifying educational expenses 2. higher contribution limits 3. no earnings limitations 4. contributions that may be made by someone other than a parent or legal guardian
2 & 3 Contributions to an ESA are limited to $2,000 per beneficiary per year, whereas the 529 limit is set by the plan sponsor, sometimes as high as $300,000. Unlike the ESA, where there is a ceiling on the earnings for a contributor, there is no limit for someone setting up a 529. Both Section 529 plans and Coverdell ESAs enjoy tax-free distributions and may be established by almost anyone.
Which of the following employer- sponsored plans is NOT covered by ERISA? a. Deferred compensation b. 401(k) c. Defined benefit pension d. 403(b)
a. Deferred compensation Deferred compensation plans are NOT ERISA-covered plans. that is what gives them a greater flexibility than a covered plan.
Which of the following is the form of portfolio management that rotates between sectors on changes to the business cycle? a. Strategic portfolio management b. Cyclical rotation c. Segment rotation d. Tactical portfolio management
c. Segment rotation Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases.
A schedule K-1 would be received by an individual with an ownership interest in all of the following except a. a partnership b. an S corporation c. an LLC d. a C corporation
c. a C corporation C corporations pay taxes on their earnings; the other business types listed flow through the income to their owners. the owner's share of income (or loss) is reported to them on the K-1.
The CAPM s used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 12%, and a particular stock's beta is 0.8 with a correlation coefficient of 0.6, the expected return would be a. 9.6% b. 11.6% c. 7.2% d. 10.0%
d. 10.0% The formula for this computation is as follows: (12%-2%)*0.8. Then add that to the RF rate to get the expected return.
An investor invests a total of $30,000 and creates a portfolio of 3 different stocks placing 1/3 of his investment into each security. From his holding in Company A, he receives a dividend of $600; from company B, a dividend of $500; and from company C, nothing. One year later, the market price of the company A stock has increases by 20%, company B's stock increased by 10%; and company C's stock has remained the same. What is the investor's total return on this portfolio? a. 3.67% b. 10% c. 4.56% d. 13.67%
d. 13.67% Total return includes both appreciation (growth) and income (dividends). Company A: 20% ($2,000) of growth + dividends ($600) Company B: 10% ($1,000) of growth + dividends ($500) Company C: no growth or dividends Total appreciation = $3,000 Total dividends = $1,100 Total return on investment = $4,100/ $30,000 = 13.67%
Which of the following strategies would most effectively protect an investor with a short stock position? a. Sell a put b. Sell a call c. Buy a put d. Buy a call
d. Buy a call Purchasing a call on the security protects the customer from a loss in excess of the strike price plus the cost of the call should the security rise in price. This is the most common way to hedge a short stock position.
