Unit 4

GHI currently has earnings of $4 and pays a $0.50 quarterly dividend. If GHI's market price is $40, the current yield is

5%

Which of the following is the simplest portfolio management style for individual stocks?

Buy and hold

Grandma has decided to give her grandson some stock that she bought many years ago. When the grandson sells the stock, how is the tax liability figured?

Her cost basis and date of purchase is used.

least suitable recommendation for a qualified money-purchase plan account?

Investment grade municipal bond.

A wealthy individual has established a trust and wishes to establish an account that permits the trust to engage in margin transactions. the following statement regarding margin trading in trust accounts is TRUE?

It is permitted if provided for in the underlying documentation.

A feature of which of the following business entities is limited liability but no flow-through of earnings or losses?

LLC

could NOT participate in a Keogh plan?

Limited partner who does not contribute any personal services to the partnership but has invested money.

plan fiduciaries under ERISA

Plan fiduciaries must ordinarily diversify plan investments, Plan fiduciaries are personally liable for fines if they violate their fiduciary duties.

most risk for an investor?

Sell short 100 shares of SSS and sell 1 SSS put. A short sale coupled with a sale of a put is equivalent to selling an uncovered call and creates the most risk.

gift tax annual exclusion are

The annual exclusion is the amount that an individual may give to other individuals each year without incurring a gift tax, The annual exclusion is currently (2019) set at $15,000, A separate annual exclusion is available for each donee.

alternative minimum tax is

The excess of the alternative tax over the regular tax is added to the regular tax.

Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock?

The hypothecation agreement

a traditional IRA is

The income and capital gains earned in the account are tax deferred until the funds are withdrawn.

One of your very generous clients has used up her lifetime gift exclusion. Continuing to make gifts, she gives $50,000 to a grandchild and $18,000 to the child of a friend. What are the tax consequences of these gifts?

The tax rate on the $50,000 gift will be higher than that on the $18,000 gift. Gift taxes and estate taxes are progressive.

dollar cost averaging tends to lessen which risk?

Timing.

A portfolio manager, putting most of his focus on the financial statements of the companies he is analyzing, is most likely using which management style?

Value

Which of the following would be included in the list of financial considerations?

Vested interest in the employer's 401(k) plan The client's marginal tax bracket Income from rental properties

a money purchase pension plan

Voluntary employee contributions are optional. Employer contributions are required.

Company-sponsored 401(k) retirement programs have

Voluntary employee contributions. Voluntary employer contributions.

It is often said that the backbone of the over-the-counter market is the market-maker. A good description of a market maker would be:

a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market.

A limited liability company is

a company with tax consequences similar to a partnership

An advantage of structuring a business operation as an S corporation rather than a C corporation would be

avoiding double taxation

Investors who buy shares in state-specific municipal bond funds may be subject to:

capital gains tax.

The formula for computing the combined equity in a mixed margin account is

current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account

One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a partnership or a C corporation. Among the advantages of operating as a partnership are:

ease of dissolution, flow-through of income or loss.

The concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as:

portfolio optimization.

Two of the major factors involved in the Capital Asset Pricing Model (CAPM) are

risk, time

The duties and responsibilities of a fiduciary are spelled out in

the Uniform Prudent Investors Act of 1994

When analyzing a specific common stock, the expected return is

the sum of a probability distribution of possible returns.

Under ERISA, a fund manager wishing to write uncovered calls may do so:

under no circumstances.

An elderly investor with a net worth in excess of $1 million would like to avoid the publicity surrounding probate. That could be accomplished in each of the following

using a tenants in the entirety account using a JTWROS account using a TOD account

An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is an exception to the premature distribution penalty tax?

Distribution to pay medical expenses that exceed 7.5% of adjusted gross income, distribution because of an employee's death or disability, distribution made pursuant to a qualified domestic relations order.

Under the Securities Exchange Act of 1934, a market maker is:

a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price.

Expected return is:

an estimate of probable returns an investment may yield.

An investment strategy where a higher price is paid for a stock based on expected returns is:

growth investing.

If a company's dividend increases by 5% but its market price remains the same, the current yield of the stock will:

increase.

The president of a business entity opens an account in the name of the business. When determining the suitability of recommendations to the account, knowing the president's personal financial condition is necessary for each of the following forms of business structure:

a sole proprietorship, an LLC, an S corporation.

Each of the following terms is commonly found in modern portfolio theory

efficient set, capital asset pricing model, feasible set

Under Modern Portfolio Theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as the

feasible set

Section 404c of ERISA deals with:

fiduciary responsibilities.

An investor's holding period return would be less than the bond's yield to maturity if

the coupons were reinvested at a rate below the yield to maturity

Among the advantages of forming an S corporation rather than a C corporation for a new business enterprise is

any losses flow-through to the investors

In order to compute an investor's real rate of return on a common stock holding, all of the following are necessary

appreciation, dividends, inflation rate.

The equation for the CML uses the:

expected return of the portfolio; risk-free rate; return on the market; standard deviation of the market; and standard deviation of the portfolio.

An investor is reviewing his portfolio. To compute the real rate of return on an investment, it would be necessary to know

the gain (or loss) recognized on the asset, the income received from holding the asset, the rate of inflation

An investor with a short position enters an order marked, "buy DMF at 25.50 stop." It would be most correct to state

the order will be triggered if the market price goes to or above 25.50

"You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities"

this is the loan consent agreement

A premature distribution from an IRA would be exempt from the premature distribution penalty under all of the following circumstances

to pay for qualifying medical expenses, upon the death of the IRA owner, to correct an excessive contribution to the IRA.