5th Set Flashcards
3 different forms dividends can be paid in
Cash, stock, or property
T/F: Bonds issued by US territories (i.e Virgin Islands) are triple tax exempt
True
T/F: For an investor, one of the major advantages of munis is that they are typically exempt from federal income tax.
True
No federal INCOME tax
Are C corps double taxed?
Yes
C corps are double taxed
If dividends from ADRs are paid in USD, who the investors still have currency risk
Even though paid in USD, dividends are still declared in foreign currency
Can REITs trade OTC?
Yes, and on normal exchanges too
75% of assets in a REIT must be invested in either income producing real estate or _____
Mortgages
In order for a REIT to avoid taxation as a trust, it must distribute __% of it’s net operating income
90%
T/F: Employers can contribute to a SEP IRA
True
Employers, not employees, make contributions to SEP IRAs, and the decision about whether and how much to contribute each year can vary.
T/F: The statutory prospectus is the final prospectus
True
Final prospectus
Give an example of a closed end fund
A muni bond fund
T/F: Ginnie Mae, Freddie Mac, and Fannie Mae all issue mortgage backed securities
True
They issue MBS
(Sallie Mae does not, it’s for student loans)
T/F: Sallie Mae issues mortgage backed securities
False
Sallie Mae is for student loans, etc.
What does Beta measure
Volatility of the security compared to market as a whole
Market has beta of 1.0
Is Sallie Mae backed by taxing power of the US government?
No
Sallie Mae is student loans
T/F: Freddie Mac is publicly traded and issues pass through securities
True
Freddie Mac buys mortgages
Customer statements must be sent at least once every ____
3 months, quarterly
If account has penny stocks then monthly
T/F: all reinvestments of mutual fund dividends (and capital gains distributions) are at the NAV with no sales charge.
True
Don’t pay sales charge when reinvesting
If an uncle opens a Coverdell ESA for his niece and she takes a distribution for $10k even thigh she only has $9k of qualified education expenses, who pays the taxes on the excess $1k?
The niece
Any excess distribution representing earnings that is not used to meet qualified education expenses is taxable to the beneficiary who took the distribution.
T/F: Partnerships, limited or general, and S corporations do not pay income tax. Any income earned by the business flows through to the owners.
True
No income tax for LP, GP, or s corp
Taxes on payments received from a 403b (tax sheltered annuity) plan
100% taxable
Both earnings and principal
When tax-sheltered annuity funds are withdrawn, they are fully taxed at ordinary income rates. Funds were contributed pretax and earnings accumulate tax deferred.
For a closed end investment company, is there a prospectus required after the IPO?
No
Unlike open end investment companies which require a prospectus
What kind of shares can an open end investment company issue
Only common shares
Closed end can issue common, preferred and debt instruments
What kind of securities can a closed end investment company issue?
Common shares, preferred shares, and debt instruments
Open-end companies can only issue common shares
Are shares of a closed end investment company redeemable?
No
Shares in open end investment company are redeemable tho
Are shares of an open end investment company redeemable?
Yes
The company must redeem shares
When funds from a tax sheltered annuity plan (493b plan) are withdrawn how are they taxed?
Tax sheltered annuity plans (493b) are taxed at 100% ordinary income
Funds contributed pre tax
Earnings grew tax deferred
So no tax $ was ever due -> %100 ordinary income
Min age to establish an IRA
No min age to open an IRA
However, to be eligible to make an IRA contribution, you must have earned income such as wages or tips. As with any IRA, that earned income must equal or exceed the amount of your IRA contribution.
Do open end investment companies (like mutual funds) trade in the secondary market?
No
No secondary market trading
Do closed end investment companies trade in the secondary market?
Yes
After ipo shares trade in secondary market (exchanges or OTC)
Maximum sales charge for open end investment companies
8.5% max sales charge
What business type (s corp, c corp, LP, etc.) would have the easiest time opening an account at a member firm
Sole proprietorship
Since sole proprietorships are opened as individual accounts
Who handles the registration of limited partner units
The syndicator
not the general partner
If soliciting new customers to buy penny stocks, do you need to prepare a suitability statement?
Yes
member must prepare a suitability statement showing why the proposed penny stock trade is suitable for that customer
(Not required if soliciting established customers)
When soliciting penny stocks, you don’t need to prepare a suitability statement if soliciting “established customers”. What is the definition of this term?
An established customer is one who has effected a securities transaction, made a deposit of funds or securities in an account at least 1 year before the proposed penny trade, or made 3 purchases of penny stocks on 3 separate days involving 3 different issuers.
Max amount of capital losses that can be deducted form income in a single ta year
$3k
Can carry over any remaining losses to next years
How can you remember what options companies use to save themselves against currency fluctuations?
Remember the acronym EPIC: Exporters buy Puts and Importers buy Calls.
