Unit 20 - Knowledge/Quiz/Exam Questions

An investor purchased 100 shares of Acme Shoelace stock for $20 per share. Four years later, the investor sold the stock for $28 per share. This investor would report these transactions, on a per share basis, as A) $20 cost base, $8 capital gain. B) $28 capital gain. C) $20 return of capital, $28 return on investment. D) $28 return on investment.

A) $20 cost base, $8 capital gain.

Two years ago Lisa Smith sold short 100 shares at $50 per share and two years later bought them back for $55 per share. The stock paid a $2.50 dividend each year. How much did Smith gain or lose per share for tax purposes? A) A $5 loss B) A $10 gain C) A $5 gain D) No gain or loss

A) A $5 loss

Which of the following would be considered earned income? A) Bonus received from employment B) Interest received from a bond investment C) The premium kept from an unexercised short put D) Dividends received from a stock investment

A) Bonus received from employment

What are the two basic types of return on an investment? A) Capital gains and income B) Interest and principal C) Dividends and interest D) Short term and long term

A) Capital gains and income

Which of these is correct regarding the ex-date for a common stock? I. It is set by the board of directors. II. It is set by FINRA or the exchange. III. It is the first date an investor can purchase a security and not be entitled to the dividend. IV. It is the date the seller reimburses the buyer for the amount of the dividend paid. A) I and III B) I and IV C) II and III D) II and IV

A) I and III

The Windmill Growth Fund is composed of many stocks from a variety of large companies. It has a stated objective of capital appreciation from holding the stock of the large companies. If you wanted to compare the performance of the fund to the market, which of these indices would be the best? A) S&P 500 B) Wilshire 5000 C) EAFE Index D) S&P 400

A) S&P 500

Which of the following regarding income is true? A) Salary or bonuses are earned income; interest and dividends are investment income. B) Salary, bonuses, interest, and dividends are all investment income. C) Salary or bonuses are portfolio income; interest and dividends are investment income. D) Salary, bonuses, interest, and dividends are all portfolio income.

A) Salary or bonuses are earned income; interest and dividends are investment income.

Which of the following is a benchmark for large cap stocks? A) Standard and Poor's 500 Index B) Russell 2000® Index C) Wilshire 5000 D) Dow Jones Utilities Index

A) Standard and Poor's 500 Index

Shelby Bogden, your client, purchased a 6% corporate bond with a current yield of 5%. The bond was purchased at A) a premium. B) below par. C) a discount. D) par.

A) a premium.

An investor notices that a bond purchased several years ago at 95 is now priced at 90. The investor sells the bond for 90, then immediately repurchases it for 90. This action is known as A) a wash sale. B) pegging. C) marking the close. D) matched orders.

A) a wash sale.

Regarding the taxation of gains on securities, all of the following are true except A) gains on securities for a position held at least 12 months are not taxable. B) capital gains are associated with the sale of securities and other real assets. C) short-term gains are taxed at less favorable ordinary income tax rates. D) long-term gains are taxed at more favorable long-term rates.

A) gains on securities for a position held at least 12 months are not taxable.

For tax purposes, investment income is A) normally taxed as ordinary income. B) always taxed at the capital gains tax rate. C) always taxed at the highest ordinary income tax rate. D) never taxable at ordinary income tax rates.

A) normally taxed as ordinary income.

All of the following are taxable to the investor except A) stock dividends. B) semiannual interest payments. C) capital gains distributions. D) cash dividends.

A) stock dividends

Your customer had $120,000 in ordinary income in the prior tax year. This customer also sold 2 stock positions - first for a gain of$47,000 and second for a loss of $50,000. For that tax year, the customer will pay tax on A. $117,000 in ordinary income and zero net gains B. $117,000 in ordinary income and $3,000 in gains C. $120,000 in ordinary income and zero net gains D. $120,000 in ordinary income and $3,000 in net gains

A. $117,000 in ordinary income and zero net gains

Skye purchased 100 shares of Moreno, Inc., for $20 a share. One year later, she sold the shares for $21 dollars. Over the year, Moreno paid a $0.25 quarterly dividend. What was Skye's gain or loss and how much investment income did she earn? A) $2 in income B) $1 gain and $1 in income C) Cannot be determined from this information D) $2 total gain

B) $1 gain and $1 in income

Drew purchased 100 shares of Moreno, Inc., for $20 a share. One year later, he sold the shares for $21 dollars. Over the year, Moreno paid a $0.25 quarterly dividend. What is Drew's total return? A) $1.00. B) 10.00%. C) $2.00. D) 5.00%.

B) 10.00%. (Total return includes any income the investment return produces; it is also expressed as a percentage, not dollars. The formula is as follows: ((sales proceeds - cost basis) + income) / cost basis. Using the formula here, the calculation is as follows: ((21 - 20) + (4 × .25)) / 20 = (1 + 1) / 20 = 2 / 20 = .1 (or 10%).)

An investor has a long position in ABC Chemical Corp. (ABCCC), with a substantial unrealized loss. Wishing to use that loss to offset realized gains, the investor sells the stock. In reinvesting the proceeds of the sale, the investor could avoid violating the wash-sale rule by purchasing A) ABCCC convertible bonds. B) ABCCC put options. C) ABCCC warrants. D) ABCCC call options.

B) ABCCC put options.

An investor purchased and then sold a security 8 months later for a gain. this gain A) is considered to be a short-term gain, and it will be taxed at a more favorable rate than long-term gains. B) is considered to be a short-term gain, and it will be taxed at the same rate as the taxpayer's other ordinary income. C) is considered to be a long-term gain, and it will be taxed at the same rate as the taxpayer's other ordinary income. D) is considered to be a long-term gain, and it will be taxed at a more favorable rate than short-term gains.

B) is considered to be a short-term gain, and it will be taxed at the same rate as the taxpayer's other ordinary income

A customer owns a diversified portfolio of domestic large-cap stocks. This customer would like to compare her portfolio's performance to the overall market. The best index to use as a benchmark is which of the following? A. EAFE Index B. S&P 500 Index C. Barclay's Aggregate Bond Index D. Russell 2000 index

B. S&P 500 Index

On March 3, the board of directors of Seabird Airlines declares a $0.20 a share dividend payable to holders of record, as of March 30. Seabird stock jumps on the news from $35 a share to $40 a share on the news. The current yield of Seabird stock is A) 5.00%. B) 0.50%. C) 2.00%. D) 2.25%.

C) 2.00%. (The formula is (quarterly dividend x 4) / current market value. (0.2 x 4) / 40 = (.8) / 40 = .02 (2%) )

Betsy Bingham asks you what her current yield will be if she buys a 6% corporate bond at $1,200. The answer is A) 3%. B) 6%. C) 5%. D) 2%.

C) 5%.

Which of the following are true of long-term or short-term gains or losses? A) Holding a stock and selling it above its cost basis if held for one year would be a long-term gain. B) Holding a stock and selling below its cost basis if held for over a year would be a short-term loss. C) Holding a stock and selling above its cost basis if over 12 months later would be a long-term gain. D) Holding a stock and selling below its cost basis if held for one year would be a long-term loss.

C) Holding a stock and selling above its cost basis if over 12 months later would be a long-term gain.

Four of the best-known indices and averages are listed as follows. How do they rank from most to fewest issues in the index? I. Dow Jones Industrial Average II. NYSE Composite Index III. Standard & Poor's 500 IV. Wilshire 5000 A) I, IV, III, II B) II, III, I, IV C) IV, II, III, I D) III, II, IV, I

C) IV, II, III, I

An investor purchased an MJS Corporation 6% 20-year bond at issue for $950. Two years later, the investor sold the bond for $925. This investor experienced A) a $925 return on investment. B) a $25 return on investment. C) a $25 capital loss. D) a $25 interest loss.

C) a $25 capital loss.

WAIT FOR ANSWER All of these dates are set by the board of directors of a corporation except A) the declaration date. B) the ex-dividend date. C) the payable date. D) the record date.

C) the payable date.

Your client, Dana McCann, just purchased a 20-year City of Salt Lake School District bond for $800. The bond has a state rate of 4%. The current yield is A) 2% B) 3% C) 4% D) 6%

C) 5%

seabird airlines, inc. pays a $.40 a share quarterly dividend, and shares are currently trading at $32 a share. The current yield for Seabird is A. 1 1/4% B. 2 1/2% C. 5% D. 10%

C. 5%

all of the following are components of ordinary income EXCEPT A. bonus from their employer B. interest payments from a bond portfolio C. profit made from the sale of a long-held security D. consultation fees received from a client

C. profit made from the sale of a long-held security

Two years ago Joshua Ryan bought 100 shares of XYZ at $60 per share. While he held the stock, it paid dividends of $1 the first year and $1.50 the second year. Joshua sold the shares at $40 per share after a 2:1 stock split. How much gain or loss did he incur per share for tax purposes? A) $17.50 loss per share B) $12.50 gain per share C) $20 loss per share D) $10 gain per share

D) $10 gain per share (The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. He bought the shares for $60, and then there was a 2:1 split so the cost basis was adjusted to $30 per share. He sold at $40 so he had a $10 gain. Dividends are not part of the calculation for gain or loss.)

Your customer purchased 1,000 shares of SmallCo Stock at $10 a share. SmallCo pays no dividends. Exactly one year later, the customer sold the shares for $12 a share. They realized a A) $2,000 long-term capital loss. B) $2,000 long-term capital gain. C) $2,000 short-term capital loss. D) $2,000 short-term capital gain.

D) $2,000 short-term capital gain.

Your customer has performed the following trades Bought 200 shares of ABC at $40 Bought 400 shares of ABC at 50 Sold 600 shares of ABC at 55 What is the result of these trades? A) A $5,000 loss B) A $6,000 loss C) A $6,000 gain D) A $5,000 gain

D) A $5,000 gain

The MSCI-EAFE Index tracks which of the following? A) Corporate bonds B) Mid-cap stocks C) Municipal bonds D) Foreign equities

D) Foreign equities

Which of the following would be true with regard to capital gains? I. If an asset is sold within one year (12 months or less) of its purchase, the gain is considered to be short-term and taxed at the same rate as the taxpayer's ordinary income. II. If the asset is held for more than a year, the gain is considered to be long term and is taxed at a favorable rate. III. Capital gains are usually associated with the distribution of dividends including stock splits. IV. Capital gains can be defined as the income earned from interest, wages, rents, royalties, and similar income streams. A) II and III B) I and III C) III and IV D) I and II

D) I and II

An investor has a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule? A) OMQ warrants B) OMQ call options C) OMQ convertible bonds D) OMQ put options

D) OMQ put options

Which of the following best describes the calculation for gains or losses for tax purposes? A) Proceeds minus dividend, plus cost basis B) Proceeds plus cost basis C) Proceeds plus dividends, minus cost basis D) Proceeds minus cost basis

D) Proceeds minus cost basis

Regarding capital gains, which of the following is true? A) Long-term gains are those realized on positions held for 10 years or more. B) Short-term gains are those realized on positions held for 9 months or less. C) Long-term gains are those realized on positions held for 2 years or more. D) Short-term gains are those realized on positions held for 12 months or less.

D) Short-term gains are those realized on positions held for 12 months or less.

Your client, Soren Aland, buys a 4% XYZ corporate bond. If his current yield is 5%, he bought the bond at A) above par. B) par. C) a premium. D) a discount.

D) a discount.

Earned income would include all the following except A) commission on sales for a real estate agent. B) tips. C) year-end bonuses. D) dividends earned on mutual funds.

D) dividends earned on mutual funds.

When a bond is purchased at a discount the current yield will be A) the same as the nominal rate. B) lower that the stated rate. C) lower than the fixed rate. D) higher than the coupon rate.

D) higher than the coupon rate.

the Windmill Growth Fund declares a 15-cent dividend for shareholders of record as of Wednesday, November 12. The most likely ex-dividend date is A. Monday, November 10 B. Tuesday, November 11 C. Wednesday November 12 D. Thursday, November 13

D. Thursday, November 13

Your client, Mrs. Watt, sold her investment in Ohm Electric Company on June 10 for $22 a share. She purchased the stock on July 10 of the previous year for $18 a share. she has realized A. long-term capital loss B. long-term capital gain C. short-term capital loss D. short-term capital gain

D. short-term capital gain