Series 7 - Mastery Exam III #2 (Q1 - Q36)
A 25-year old single client has just started his own small business and is not covered by a retirement plan. He has $5,000 to invest and currently has a low level of income. He wishes to start saving for retirement. The BEST recommendation is a: A Roth IRA B SIMPLE IRA C Traditional IRA D Roth 401(k)
The best answer is A. Anyone with earned income can open an IRA. Because this individual is in a low tax bracket, a Roth IRA contribution, which is non-deductible, makes sense (there is no real benefit from making a deductible contribution to a Traditional IRA). With $5,000 to invest, this is within the $6,000 contribution limit for 2021. Earnings build "tax-free" in a Roth, and distributions taken at retirement age are non-taxable. Also remember that high-earners cannot open a Roth IRA. In contrast, if a Traditional IRA were opened, this individual would get a tax deduction (he is not covered by another qualified plan), but it would have little value because of his low tax bracket. Earnings would build tax deferred and when distributions are taken at retirement age, they would be taxable, so the Roth is the better deal. A 401(k) is an employer-sponsored salary reduction plan under ERISA that requires major paperwork to establish. It allows a contribution of up to $19,500 in 2021, far more than the $5,000 this individual has to invest. This is not suitable for a very young single person starting a small business. A SIMPLE IRA is another qualified retirement plan that is "simpler" to set up than a 401(k), and that is only available to businesses of 100 or fewer employees. It allows for a larger deductible contribution than an IRA ($13,500 in 2021), which is more than this person needs. Also, it is still not as easy to set up as an IRA.
A customer in the highest tax bracket has $500,000 to invest. The customer is subject to the AMT. The BEST recommendation would be an investment grade: A Municipal bond yielding 2.50% that is not subject to the AMT B Municipal bond yielding 2.70% that is subject to the AMT C Treasury bond yielding 3.50% D Corporate bond yielding 3.75%
The best answer is A. Because this customer is in the highest tax bracket, a tax-free municipal bond will give the highest "after-tax" return. Because this customer is subject to the AMT (Alternative Minimum Tax) he should avoid a municipal bond where the interest income is included in the AMT computation (non-essential use private purpose bond issues). The simplified math for this works out as: Choice A yield after federal tax is paid - 2.50% (none of yield is taxed) Choice B yield after federal tax is paid - 1.94% (28% AMT max. tax rate) Choice C yield after federal tax is paid - 2.21% (37% federal max. tax rate) Choice D yield after federal tax is paid - 2.36% (37% federal max. tax rate)
An investor goes short against the box to lock in a gain on a stock position that has been held for 11 months. 3 months later, the investor closes the short position with his long shares. Which of the following statements are TRUE? I The holding period of the underlying stock stopped counting as of the short sale date II The holding period of the underlying stock stopped counting as of the delivery to cover the short position III The gain will be taxed as a short term capital gain IV The gain will be taxed as a long term capital gain A I and III B I and IV C II and III D II and IV
The best answer is A. If a customer goes "short against the box" on a stock position that has been held short term, the holding period of the underlying stock stops counting as of the short sale date. The worry of the IRS is that once the long position has been hedged, the customer will simply wait out the extra time needed to enjoy a long term capital gains holding period, which would be taxed at a lower rate. IRS rules require that if one goes "short against the box," any gain is taxable at that point. Thus, a short term holding period cannot be stretched into a long term holding period. Note that there is a 15% maximum long term capital gains tax rate if the position is held over 12 months (20% for very high earners - instead of a 37% maximum tax rate for short term capital gains.)
An assessment of an existing client's financial status shows the following: Name: Mack McCool Age: 41 Marital Status: Single Income: $160,000 per year Retirement Plan: Yes - 401(k) and IRA Life Insurance: No Risk Tolerance: High Home Ownership: No - Currently rents at $3,000 per month Client Balance Sheet: Assets Cash on Hand: $20,000 Marketable Securities: $220,000 ($10,000 in Money Market Fund; $40,000 in Treasury Notes; $70,000 in Blue Chips; $100,000 in Growth Stocks) Retirement Plans: $158,000 (Invested in Equity Mutual Funds) Auto: $58,000 Home Ownership: None Liabilities Credit Cards Payable: $10,000 Auto Loan: $50,000 Net Worth: $396,000 The customer has decided to purchase a home instead of renting. The price of the home is $750,000 and the customer intends to put down 20% and obtain a mortgage for the balance. The customer explains that he will need the $150,000 down payment in 30 days. The best recommendation to the customer is to liquidate his: A growth stocks and blue chip stocks immediately in the amount of $150,000 to obtain the necessary cash down payment B growth stocks and blue chip stocks in 30 days in the amount of $150,000 to obtain the necessary cash down payment C retirement accounts in the amount of $150,000 to obtain the necessary cash down payment D Net Worth in the amount of $150,000 to obtain the necessary cash down payment
The best answer is A. Since this customer needs $150,000 in cash within 30 days for the down payment on the house, the best thing to do is to liquidate his stock positions now (NOT in 30 days) to get the funds for the down payment. If the customer waited 30 days, these stock positions could suffer a market loss, making it hard to fund the down payment. Liquidation of the pension assets makes no sense, since the customer is 41 years old and must pay regular income tax plus a 10% penalty tax on the liquidation. Net Worth cannot be "liquidated" - it is simply the value left over when all assets are subtracted from all liabilities.
Commercial paper is a(n): I Money Market Instrument II Capital Market Instrument III Exempt Security IV Non-Exempt Security A I and III B I and IV C II and III D II and IV
The best answer is A. Commercial paper is a money market instrument issued by corporations. It is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed 270 days and can be sold without a prospectus.
A younger female customer, in the highest tax bracket, already has a substantial investment portfolio that is invested in a balance of quality stocks and bonds. She wants an investment that will provide rapid asset growth and is willing to assume risk. The BEST recommendation would be: A Emerging markets fund B Single stock C Municipal bond D Index fund
The best answer is A. Since this customer already has a balanced quality portfolio and is looking for rapid growth, an emerging markets fund would give the customer the rapid growth she is seeking (along with greater risk).
ABC stock is currently trading at an all-time high price of $150 per share. Your client contacts you about the stock, stating that he believes that the stock is ripe for a sell off after its next quarterly news announcement. He has $10,000 to use for a trade, but does not want to lose more than this amount. The BEST recommendation to the client is to: A Buy ABC Puts B Short ABC stock C Short an ETF that consists of stocks similar to ABC D Sell ABC Calls
The best answer is A. The key piece of information in this question is that the client does not want to lose more than his investment. If puts are purchased to speculate on a market price decline, the customer can only lose the premium paid if the market rises. If the customer shorts stock, there is unlimited loss potential in a rising market. If the customer sells calls, there is unlimited loss potential in a rising market.
When a sales representative wishes to sell an exempt security to an out of state customer, which of the following statements are TRUE? I The broker-dealer must be registered in the state where the sale of the exempt security is going to be made II The broker-dealer does not have to be registered in the state where the sale is going to be made because the security is exempt III The sales representative must be registered in the state where the sale of the exempt security is going to be made IV The sales representative does not have to be registered in the state where the sale is going to be made because the security is exempt A I and III B I and IV C II and III D II and IV
The best answer is A. While exempt securities are not registered under both Federal and State law, broker-dealers and their sales employees that sell these bonds must still be registered under state law in any state in which the securities are offered. It makes no difference that the security being offered is exempt; the agent and broker-dealer offering them in the state must still be registered in the state (since they can offer these securities fraudulently, and the state wants to know where to find these persons if they do so!).
"Phantom income," in a limited partnership: I can occur when the partnership abandons an asset on which there is an outstanding loan II can occur when the partnership abandons an asset on which there is no outstanding loan III is taxable income IV is not taxable income A I and III B I and IV C II and III D II and IV
The best answer is A. "Phantom income" is a rather nasty IRS concept that states that if a loan is forgiven, the amount of the unpaid loan becomes taxable income to the beneficiary. If a partnership loan is forgiven, (or partially forgiven, for example when an asset is given to the lender in return for forgiveness of the loan), "phantom income" is generated to the extent that the loan balance exceeds the asset's market value. "Phantom income" is taxable income, even though no actual cash income is received by the beneficiary.
Crowdfunding offerings are typically: I made by start-up issuers II made by seasoned issuers III purchased by small investors IV purchased by large investors A I and III B I and IV C II and III D II and IV
The best answer is A. Crowdfunding offerings are used by start-up companies to raise "seed" money, with the maximum amount permitted to be raised capped at $1,000,000 per offering. They are targeted at small investors. The investment minimum is only $2,000 and the investor is not required to meet any income or net worth tests. (Test Note: The investment minimum and maximum amount that can be raised are subject to an inflation adjustment every 5 years. In April 2017, they were adjusted to $2,200 and $1,070,000 respectively. For the exam, know the base amounts and the fact that they are indexed for inflation periodically.)
All of the following statements are true regarding gift and estate taxes EXCEPT: A gift and estate taxes are regressive B estates of married persons that are willed to the surviving spouse are eligible for an unlimited exclusion from tax C gifts valued up to $15,000 per person in 2021 are excluded from tax D tax liability rests with the donor or estate
The best answer is A. Estates of married persons are eligible for an unlimited spousal exclusion. Gifts of up to $15,000 per person in 2021 are excluded from the tax. Tax liability rests with the donor or estate (since they have the money!) Tax rates on gifts and estates increase with the size of gift or estate - this is known as a progressive tax. Regressive taxes are flat taxes.
Transactions in the interbank market cause direct movements in the prices of: A currencies B currency options C equities D equity options
The best answer is A. Foreign currencies trade in the interbank market.
Rule 144 allows the sale, every 90 days, of: I 1% of the outstanding shares II 10% of the outstanding shares III the weekly average of the prior 4 weeks' trading volume IV the weekly average of the prior 8 weeks' trading volume A I or III, whichever is greater B I or IV, whichever is greater C II or III, whichever is greater D II or IV, whichever is greater
The best answer is A. Rule 144 allows the sale, every 90 days, of the greater of 1% of the outstanding shares of that company; or the weekly average of the prior 4 week's trading volume.
The Chairman of XYZ Corporation, while playing golf with a neighbor, casually mentions that this quarter's earnings are likely to be lower than expected. Based on this information, the neighbor sells short XYZ stock the next day. Which statements are TRUE? I The Chairman has violated the insider trading rules II The Chairman has not violated the insider trading rules III The neighbor has violated the insider trading rules IV The neighbor has not violated the insider trading rules A I and III B I and IV C II and III D II and IV
The best answer is A. Under the Insider Trading Act of 1988, any person who uses material non-public information to trade in a company's stock for profit can be considered to be an "insider." In addition, the Act extends the definition of an insider to "controlling" persons - in this case, the provider of the information. A person who "communicates" material non-public information can be held liable under the Act unless "that person acted in good faith and did not directly or indirectly induce the act constituting the violation." Therefore, both the person trading on the inside information (the "tippee") and the communicator of the information (the "tipper") can be held liable under the Act.
The formula for the defensive interval ratio is: A Current Assets / Current Liabilities B Current Assets / Daily Operating Expenses C Annual Sales / Accounts Receivable D Annual Sales / Daily Operating Expenses
The best answer is B. Current Assets / Daily Operating Expenses The defensive interval ratio is a variation on the Current Ratio that measures liquidity. It takes Current Assets and divides it by Daily Operating Expenses to find the number of days that a company can continue to run if it were not able to bring in any more current assets. This is the period of time, or "defensive interval" that the company could continue running in a "worst case" scenario where business has collapsed and it was not generating current assets. For example, a company with daily operating expenses of $100,000 and total current assets of $5,000,000 can operate for $5,000,000 / $100,000 = 50 days before it runs out of money.
Regarding municipal discount bonds, which statements are TRUE? I Municipal original issue discount bonds must be accreted II Municipal original issue discount bonds may be accreted III Municipal market discount bonds must be accreted IV Municipal market discount bonds may be accreted A I and III B I and IV C II and III D II and IV
The best answer is B. The discount on original issue discount municipal bonds must be accreted annually. It is reported annually as municipal interest income earned (non-taxable), and the cost basis of the bond is adjusted upwards by this amount. If the bond is held to maturity, the entire discount has been accreted and there is no capital gain or loss at maturity. The discount on market discount municipal bonds is treated as taxable interest income earned. This is nothing more than a "tax grab" by the Federal government - the idea being that wealthy people buy municipal bonds, so if there is a way that they can be taxed without jeopardizing their basic Federal income tax-free status, why not? The holder can either accrete the discount annually as taxable interest income earned and adjust the cost basis of the bond upwards by this amount; or can wait until the bond is sold or matures to report the accumulated "earned" discount as taxable interest income at that point (this is the better choice from a tax standpoint).
Which of the following maintain "Do Not Call" lists? I SEC II Member firm III FTC IV FINRA A I and IV B II and III C I, II, III D I, II, III, IV
The best answer is B. There is both a Federal "Do Not Call" list requirement and a FINRA "Do Not Call List" requirement. The Federal List is maintained by the FTC (Federal Trade Commission). FINRA requires each member firm to keep its own "Do Not Call" list. FINRA itself does not keep the list, nor does the SEC.
Which statement is TRUE concerning "wrap accounts"? A Wrap accounts must be registered with the SEC and sold with a prospectus B To sell a wrap account, the registered representative must also be licensed as an investment adviser representative by the State C To sell a wrap account, the registered representative must also be licensed to sell insurance products by the State D Wrap accounts cannot be sold by registered representatives
The best answer is B. Wrap accounts "wrap" all services provided into a fee arrangement that is not transaction based - instead, the fee might be a fixed annual dollar fee; or a fee based on percentage of assets under management. Wrap accounts are defined as advisory products in most States, and a State investment adviser representative license is required (Series 65 or 66 exam) in addition to the federal Series 7 license needed to sell all securities.
When the market is reaching an "overbought" condition, it is expected that the next market move will be: A upwards B downwards C sideways D either upwards or downwards
The best answer is B. An overbought condition in the market occurs when the market price averages are increasing daily, but the strength of the market (the number of issues advancing versus the number of issues declining) is weakening. The market is reaching an "overbought" condition, and is approaching a peak. Thus, the next market move is likely to be a decline.
A customer buys 1 ABC Jan 50 Call @ $4 when the market price of ABC is $51. The stock then moves to $58 and the customer exercises the option and sells the stock at the market. The tax consequence is a: A capital loss of $400 B capital gain of $400 C capital gain of $800 D capital gain of $1,000
The best answer is B. If a customer exercises a call, he is buying the stock at the strike price. The customer's cost basis is the purchase price of the stock ($50) plus the premium paid ($4) = $54. Since the customer sold the stock at $58, he or she will have a capital gain of $400.
Municipal bonds purchased in the primary market at a premium to par: A may be amortized B must be amortized C must be accreted D may be accreted
The best answer is B. New issue premium municipal bonds must be amortized on a straight line basis over the life of the bond. Each year, the amortization amount reduces non-taxable interest income received; and reduces the bond's cost basis. If the bond is held to maturity, the bond's cost basis has been adjusted to par and since it is redeemed at par, there is no tax deductible capital loss. Amortization is required for both new issue premium and market premium municipal bonds.
Under IRS regulations, a gain or loss upon current disposition of an asset is first considered to be long term if the asset has been held for over: A 6 months B 1 year C 2 years D 5 years
The best answer is B. Under IRS rules, a security's holding period is considered to be long term if it exceeds 1 year. Gains on assets held over 12 months are taxed at a maximum rate of 15%. (Note that this rate is raised to 20% for individuals in the highest tax bracket.)
Which statements are TRUE about trustees performing their duties under the Trust Indenture Act of 1939? I The trustee is appointed by the issuer II The trustee is elected by the bondholders III The trustee protects the interests of the issuer IV The trustee protects the interests of the bondholders A I and III B I and IV C II and III D II and IV
The best answer is B. Under the requirements of the Trust Indenture Act of 1939, trustees are appointed by the issuer (who pays the trustee); however, the trustee is appointed to protect the interests of the bondholders.
Customer Name: Jane Smith Age: 41 Marital Status: Single Dependents: 1 Child, Age 7 Occupation: Corporate Manager Household Income: $120,000 Net Worth: $150,000 (excluding residence) Own Home: Yes Investment Objectives: Saving For College; Saving for Retirement Investment Experience: 10 years Current Portfolio Composition: $140,000 Market Value 50% Money Market Fund 50% Corporate Bonds This client has just inherited $100,000 and wants to use the funds to pay for her child's college education. She also has asked whether her current portfolio meets her goal of maximizing saving for retirement. Based on this information, the best recommendation to the client is to: A deposit the additional $100,000 to the money market fund to ensure that the funds will be available to pay for college B open a 529 Plan with the $100,000 inheritance, investing in a growth fund; and liquidate both the money market fund holding and the corporate bond holdings, using the proceeds to buy growth stocks C open a 529 Plan with the $100,000 inheritance, liquidate $50,000 of the money market fund and $50,000 of the corporate bonds, using the proceeds to buy growth stocks D open an UGMA account with the $100,000 inheritance investing in growth stocks
The best answer is C. This customer is looking to use her $100,000 inheritance to fund her kid's college education. A 529 plan is best for this, since it grows tax-deferred and distributions used to pay for college are tax free. Since the kid is only age 7, a growth fund investment is most suitable, since the child has 10-11 years before college starts. Note that a UGMA (custodial account) does not allow for tax deferral, so it is not the best choice. The customer also wants to save for retirement and she is only age 41, so she has at least 25 years to go before retiring. Her portfolio is way too conservatively invested for someone this age - it will grow at a very low rate since it is only invested in money market funds and corporate bonds. At this age, the customer should be invested 60-70% in growth stocks, with the balance in safer investments. So the best choice is to liquidate most of the money market fund and corporate bond holding, and invest the proceeds in growth stocks (Choice C). Choice C still leaves the customer with $20,000 in the money market fund (for emergencies) and she still has a small investment in corporate bonds ($20,000), but the remaining $100,000 will now be in growth stocks. This is a good mix for a 41 year old person looking to save for retirement. Also note that Choice B is not the best choice because the customer should still have a small portion of her portfolio in safer and more liquid securities (for emergencies) like a money fund.
Under MSRB rules, which of the following may be changed by mutual agreement between municipal dealers? I Confirmation contents II Time of delivery III Place of delivery IV Settlement date on a "When, As, and If Issued" ("WAII") Transaction A I and II only B III and IV only C II, III, IV D I, II, III, IV
The best answer is C. By mutual consent, municipal firms are free to change the place or time of a securities delivery; and can set the settlement date of a "When, As, and If Issued" securities transaction. (In a "WAII" trade, the actual settlement date is not known until the new issue of municipal securities is delivered and the offering has been closed between the syndicate and the issuer). Confirmation contents are explicitly "spelled out" by the MSRB and cannot be changed.
All of the following are reported on Form 1099-DIV EXCEPT: A cash dividends paid B qualifying cash dividends paid C interest paid on taxable bonds D capital gains distributions paid by mutual funds
The best answer is C. Form 1099-DIV is the report to the IRS by issuers of cash dividends paid and capital gains distributions made by mutual funds. Dividends that "qualify" for the lower 15% (or 20% for higher earners) tax rate are reported in a separate box on the form. Interest paid on taxable bonds and tax-free bonds is reported on Form 1099-INT.
Customer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of $25,000 per year. The couple wishes to buy a house in 5 years that will be substantially more expensive than the condominium in which they currently reside. To meet the customer's needs for the large cash down payment in 5 years and to reduce taxable income, the BEST recommendation is to: A open a margin account and invest in income bonds B open an Individual Retirement Account and invest in tax-deferred variable annuities C open a cash account and invest in mutual funds holding high yielding common and preferred stocks D open a trust account and invest in Treasury STRIPs
The best answer is C. Income bonds are not a reliable source of income or principal repayment (since payment depends on earnings of the issuer), and the interest is 100% taxable. Tax-advantaged investments like variable annuities should never be purchased in tax-deferred accounts. The annual accretion on Treasury STRIPS is taxable, unless the bonds are held in a tax-deferred account. Only Choice C makes sense - since cash dividends are taxed at a maximum rate of 15% (reducing taxable income), and the mutual fund shares can be easily liquidated in 5 years to make the house down payment.
A customer has the following investment mix: 25% Growth Stocks 25% U.S. Government Bonds 25% Investment Grade Corporate Bonds 25% Speculative Stocks Which asset classes are MOST susceptible to interest rate risk? I Growth Stocks II U.S. Government Bonds III Investment Grade Corporate Bonds IV Speculative Stocks A I and III B I and IV C II and III D II and IV
The best answer is C. Interest rate risk is the risk that market interest rates rise, forcing down the price of fixed income securities - meaning preferred stocks and bonds.
Under FINRA rules, which of the following accounts would be considered to be "discretionary"? A An omnibus account run by an investment adviser for his clients B An account where a third party power of attorney has been given by the customer to another individual C An account where the broker has the power to decide when and what to trade without specific customer authorization D A partnership account where only one of the partners has trading authorization
The best answer is C. A discretionary account is one where the broker has the power to decide what and how much to trade. The customer gives a written power of attorney to the broker allowing discretion to be exercised.
A portfolio of securities that moves in both the same direction and same velocity as the market as a whole would have a Beta equal to: A +0 B -0 C +1 D -1
The best answer is C. A portfolio with a "beta" coefficient of +1 is one that moves in both the same direction and same velocity as the market as a whole. A portfolio with a "beta" coefficient of +2 is one that moves in the same direction as the market as a whole, but which moves twice as fast as the market. A portfolio with a "beta" coefficient on -1 is one that moves at the same velocity as the market as a whole, but it moves in the opposite direction to the market.
What portfolio construction is most appropriate for a retired doctor who is age 75? A 100% common stocks B 75% common stock / 25% bonds C 25% common stock / 75% bonds D 100% bonds
The best answer is C. As one gets older, portfolio composition should shift to "safer" assets that generate reliable income. The general rule is to take "100 minus the investor's age" to get the appropriate investment portion to be held in stocks. Since this investor is age 75, this gives 25% of the portfolio holding in stocks; with the remaining 75% of the holding in bonds. Note that a 100% bond holding is not appropriate because people are living much longer and they need the "extra return" that is provided by stocks that can grow in value, on top of the somewhat lower fixed return provided by bonds.
Which of the following time stamps are on an order ticket? I Time of order entry II Time of trade execution, if executed III Time of order cancellation, if canceled IV Time of trade reporting on the Consolidated Tape A I and II only B III and IV only C I, II, III D I, II, III, IV
The best answer is C. FINRA requires that all order tickets sent to an exchange be stamped with the time of: Order entry; Order execution; and Order cancellation, if canceled. There is no time stamp on the order ticket for the time the trade was reported to the Consolidated Tape. These time stamps are now recorded electronically.
A wealthy, sophisticated investor with a high risk tolerance has just turned extremely bullish on the market. To profit from this, the BEST recommendation to the client would be to: A buy index calls B buy index puts C buy inverse ETFs D buy leveraged ETFs
The best answer is D. This customer has just turned "extremely bullish" on the market, meaning he thinks that equities are going to rise rapidly in price. The customer is wealthy, sophisticated, and has a high risk tolerance. The most aggressive choice offered is the leveraged ETF. Assume it is a 300% leveraged ETF based on the S&P 500 Index. If the index rises by 15%, this ETF should rise by 3 x 15% = 45%. (Of course, if the customer is wrong and the index falls, then the customer loses big time!) The purchase of an inverse ETF is not appropriate because it moves opposite to the general market, so if the market rises, it falls. Of course, if the customer were to short an inverse ETF, then if the market moved up, the inverse ETF would fall in value, for a profit on the short position - but this is not offered as a choice.
A broker-dealer who acted as financial advisor to a municipality in structuring a new issue now wishes to act as underwriter in the bond offering. Which statement is TRUE? A This is permitted without restriction B This is only permitted for competitive bid underwritings C This is only permitted for negotiated underwritings D This is prohibited for both competitive bid and negotiated underwritings
The best answer is D. A financial advisor to a municipality receives an advisory fee for helping a municipality structure a new bond issue, with the goal of getting the lowest interest cost for the issuer. An underwriter for a new municipal issue wants to get the highest interest rates possible on the bonds, because it makes them easier to sell. Thus, there is an inherent conflict of interest between the two. The MSRB rule on this is simple - the financial advisor cannot be the underwriter. It makes no difference if the underwriting is competitive bid or negotiated.
A woman is the owner of 200,000 shares of XYZ stock. XYZ is a publicly traded company with 1,000,000 shares outstanding. Which of the following statements are TRUE? I She is considered an "insider" under the Securities Exchange Act of 1934 II She is prohibited from selling XYZ stock short III She must report trading activity to the SEC IV She must be registered with the SEC as a holder of more than 5% of the company's stock A I and II B II and III C I, II, III D I, II, III, IV
The best answer is D. All of the statements are true. A holder of 10% or more is considered an insider. Insiders are prohibited from selling that company's stock short and must report their trading activity to the SEC (within 2 business days of each trade). Any holder of 5% or more of a company's stock must file with the SEC under Section 13D.
In January, 20XX a customer buys 100 shares of ABC stock at $30 per share and pays a $2 commission per share. The customer receives $1 in cash dividends during the year. The customer's cost basis in the stock is: A $28 per share B $30 per share C $31 per share D $32 per share
The best answer is D. When the stock is purchased, any commission paid is not deductible - it is part of the cost basis of the shares. Thus, the cost basis for tax purposes is $30 + $2 commission = $32 per share. The $1 dividend received is included in taxable income for this year, and is not part of the stock's cost basis.
