Unit 5 Q Bank

Which of the following is the best description of a limited partnership? A) An investment that allows for losses only to pass through as write-offs to the investors B) An investment that exempts individual investors from reporting gains or losses C) An investment that allows only for income to flow through to the investors D) An investment that permits both gains and losses to pass through to the investors

D) An investment that permits both gains and losses to pass through to the investors Limited partnerships (LPs) are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred.

A prospectus must be delivered to customers following a transaction in all of the following except A) unit investment trust. B) follow-on offering of common stock by a public reporting company. C) mutual funds. D) ETFs.

D) ETFs.

In a limited partnership, which of the following best describes who is responsible for tax consequences of the business? A) The limited partners B) The general partners C) The business D) The investors

D) The investors

For ETFs, the phrase "tax efficiency" can best be described by which of the following concepts? A) All transactions in ETFs are commissionable, and sales charges do not apply. B) ETFs generally have reportable tax gains passed on annually. C) These exchange-traded products can be purchased on margin, allowing for a smaller initial investment. D) Usually, for ETFs, there are no tax consequences for investors until the shares are sold.

D) Usually, for ETFs, there are no tax consequences for investors until the shares are sold.

An LP is a type of A) trust set up for investors. B) corporate business entity. C) debt investment. D) direct participation program.

D) direct participation program.

Tax credits for partners in a real estate program can come primarily from A) historic rehabilitation and any rent-producing properties. B) income-producing properties, both residential and retail. C) any property with the potential to appreciate in value. D) government-assisted housing and historic rehabilitation properties.

D) government-assisted housing and historic rehabilitation properties.

All of the following would be advantages of a limited partner in a DPP except A) cash distributions of capital gains. B) deductions for business expenses. C) cash distributions of earning. D) participate in the management of the business.

D) participate in the management of the business.

The Securities Act of 1933 exempts all of the following securities from registration except A) savings and loan issues. B) U.S. government issues. C) municipal issues. D) public real estate investment trusts (REITs).

D) public real estate investment trusts (REITs).

All of the following are true of REITs except A) they can be registered under subchapter M. B) they can pass through gains but not losses. C) listed REITS are liquid investments. D) they are registered as investment companies.

D) they are registered as investment companies.

All of the following would be considered advantages of exchange-traded funds (ETFs) as opposed to mutual funds except A) ETFs are commissionable. B) ETFs trade on exchanges. C) ETFs are marginable. D) ETFs are priced continuously throughout the trading day.

A) ETFs are commissionable. Trading on exchanges, ETFs are priced throughout the trading day making them easy to trade and liquid. They can also be bought or sold on margin. The purchase or sale of ETF shares is a commissionable transaction. However, the commissions paid can erode the low expense advantage of ETFs and this would have the greatest impact when trading in and out of ETF shares frequently, or when investing smaller sums of money.

How often may funds be rolled over from one state's Section 529 plan to another's? A) Once every 12 months B) No more than twice per calendar year C) As often as necessary D) Once per semester

A) Once every 12 months

Which of the following is true regarding general partners (GPs) in a limited partnership? A) They should participate in the day-to-day management of the partnership. B) They may compete with the partnership. C) Their management decisions are not legally binding on the partnership. D) They may borrow money from the partnership.

A) They should participate in the day-to-day management of the partnership.

The general partner of a limited partnership has responsibility for all the following except A) providing all of the partnership capital. B) organizing the business. C) paying partnership's debts. D) managing the day-to-day operations.

A) providing all of the partnership capital.

A customer is interested in an exchange-traded fund (ETF). With regard to how they can be traded, you would want the customer to be aware that A) real-time quotes are available for ETFs, which can be purchased throughout the trading day. B) calculating the NAV at the end of the day and adding a sales charge is how ETFs use forward pricing. C) real-time quotes are available for ETFs, which use forward pricing, the same as mutual funds do. D) the NAV calculated at the end of the day, plus a sales charge establishes the real-time quote for trading.

A) real-time quotes are available for ETFs, which can be purchased throughout the trading day. ETFs can be traded (purchased and sold) throughout the trading day. Changing price quotes are available in real time as investors buy and sell. Although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying commissions (not sales charges).

Which of the following securities are nonexempt from registration under the Securities Act of 1933? A) Municipal securities and U.S. government agency issues B) Real estate investment trusts (REITs) and corporate equity issues C) U.S. government Treasury issues and REITs D) Corporate debt issues and U.S. government agency issues

B) Real estate investment trusts (REITs) and corporate equity issues

Which of the following are potential benefits associated with a real estate direct participation program? A) Intangible costs B) Tax deductions and credits C) Dividends and interest D) Depletion allowances

B) Tax deductions and credits

Which of the following characteristics are typical of an exchange-traded product (ETP)? A) The value of an ETP is derived by formula disclosed in the prospectus and it trades on an exchange only after normal trading hours. B) The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange. C) An ETP is an ineligible investment for retail customers, and may not be purchased on margin. D) An ETP is marginable but may not be sold short.

B) The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange.

Which of the following are considered intangible drilling costs (IDCs) for an oil and gas DPP? A) Fuel and interest expenses B) Wages and insurance C) Wages and equipment D) Equipment and fuel

B) Wages and insurance Intangible drilling costs (IDCs) are costs for those items that would have no salvage value at the end of the program. These might include wages, supplies (not equipment that can be depreciated), fuel, and insurance.

Exchange-traded funds are priced A) by supply and demand insuring transaction prices equal to the fund's NAV. B) by supply and demand where transaction prices may be higher or lower than the fund's NAV. C) using forward pricing so that all transaction prices equal the fund's NAV. D) using forward pricing where transaction prices may be higher or lower than the fund's NAV.

B) by supply and demand where transaction prices may be higher or lower than the fund's NAV.

Direct participation programs (DPPs) are set up A) to pass on taxable income only to the investors, but not losses. B) having the owners of the business liable for any taxes due. C) to be taxed directly, much like corporations are taxed. D) as tax-free investments with no potential write-offs.

B) having the owners of the business liable for any taxes due. DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.

As an investment vehicle, and regarding the tax consequences, Real Estate Investment Trusts (REITs) are organized as A) mutual funds. B) trusts. C) debt instruments. D) corporations.

B) trusts. REITs, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securities.

Which of the following statements regarding real estate investment trusts (REITs) are true? Hybrid REITs typically invest in both commercial property and residential property. Some REITs hold no real property but hold mortgages on commercial property instead. Hybrid REITs can hold only residential property and mortgages on residential property. REITs can pay dividends to shareholders and make capital gains distributions. A) I and IV B) II and III C) II and IV D) I and III

C) II and IV Equity REITs typically hold commercial property rather than residential property. Mortgage REITs hold mortgages on commercial property, and hybrid REITs do both. Dividend disbursements, as well as capital gains distributions, can be made to shareholders.

Each of the following is defined as an investment company except A) An open-end management company. B) Fixed and nonfixed unit investment trusts (UITs). C) Real estate investment trusts (REITs). D) A closed-end management company.

C) Real estate investment trusts (REITs).

Which of the following is true when opening an out-of-state Section 529 plan? A) The student may not use it in the donor's state of residence. B) Earnings do not accumulate tax deferred. C) Withdrawals may not be free of state taxation. D) Withdrawals may not be free of federal taxation.

C) Withdrawals may not be free of state taxation.

Hedge funds A) are highly regulated, starting with the requirement to be registered with the SEC. B) are regulated under the Investment Company Act of 1940 with no SEC registration required. C) are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registration is required. D) are nonregulated but still require SEC registration.

C) are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registration is required. Hedge funds normally do not require registration with the SEC as they are often sold under Reg D. Furthermore, they do not come under the Investment Company Act of 1940.

In order for a business entity to qualify as a limited partnership, the LP must have A) no general partners and at least one limited partner. B) any number of general partners and no limited partners. C) at least one general partner and one limited partner. D) any number of limited partners only.

C) at least one general partner and one limited partner.

The allowable deduction for equipment used in an oil and gas direct participation program is taken as A) depletion applied when the equipment is sold. B) a credit applied at the end of the program. C) depreciation over the life of the program. D) a one-time expense applied at the end of the program.

C) depreciation over the life of the program.

All of the following are types of direct participation programs (DPPS) except A) real estate. B) oil and gas. C) retail distribution. D) leasing.

C) retail distribution. The most common types of direct participation programs are real estate, oil and gas, and leasing programs.

Regarding the decision to dissolve a LP before its scheduled predetermined dissolution date, it would need to be A) voted on by the general partner(s) only. B) ratified by the IRS because of the tax implications to dissolve earlier than planned. C) voted on by the limited partners holding a majority interest. D) made by the general partner with the largest capital contribution with no vote required.

C) voted on by the limited partners holding a majority interest. In instances where a decision to dissolve a limited partnership before its predetermined date is made, an affirmative vote to do so must be taken by the limited partners.