Ethics, Recommendations & Taxation

Question 1

Preservation of capital, safety. Rec =

Answer 1

Government securities or Ginnie Maes

Question 2

Growth. Rec =

Answer 2

Common stock or stock mutual funds

Question 3

Balanced or moderate growth. Rec =

Answer 3

Blue-chip stocks

Question 4

Aggressive growth. Rec =

Answer 4

Tech stocks or sector funds

Question 5

Income. Rec =

Answer 5

Bonds. (Not zero’s)

Question 6

Tax-free income. Rec =

Answer 6

Muni bonds or muni bond funds

Question 7

High-yield Income. Rec =

Answer 7

Corporate bonds or corporate bond funds

Question 8

Income-oriented stock portfolio. Rec =

Answer 8

Preferred stock and utility stocks

Question 9

Liquidity. Rec =

Answer 9

Money market funds (Not DPP’s, RE, annuities)

Question 10

Keep pace with inflation. Rec =

Answer 10

Stock portfolio

Question 11

What securitiy generates greatest return INCOME with moderate risk?

Answer 11

Fixed income security

Question 12

Purchasing power risk (inflation risk)

Answer 12

When the yield is lower than the inflation rate

Question 13

Reinvestment risk

Answer 13

When rates decline, it’s harder to re-invest proceeeds to maintain same income without increasing credit

Question 14

Which securities are most susceptible to reinvestment risk?

Answer 14

Mortgrage backed securities (MBS)

Question 15

Which is NOT susceptible to reinvestment risk?

Answer 15

Zero coupon bonds

Question 16

Call Risk

Answer 16

When, in high interest rate scenarios, bonds get called.

Question 17

What is systematic risk?

Answer 17

Market risk - non-related to a company

Question 18

What is Beta?

Answer 18

Measure of volatility in relation to market. For eg. If S&P500 rises by 10%, a stock with Beta of 1 will also rise by 10%. A stock with a Beta of 1.5% would rise by 15%.

Question 19

Beta also measures what?

Answer 19

Systemic / Systematic risk (Market risk)

Question 20

Exmples of high Beta risk:

Answer 20

• Tech stocks
• Automobile stocks

Earnings fluctuate substantially

Question 21

Examples of low Beta risk:

Answer 21

• Drug companies
• Utility compniees

Earnings are stable

Question 22

Examples of Passive income

Answer 22

• DPP’s

- Direct real estate

Question 23

Who is gift tax paid by?

Answer 23

The doner

Question 24

What is gift tax based upon?

Answer 24

The value

Question 25

What are the tax implications of a muni bond bought at a discount?

Answer 25

• Discount must be accreted

- No capital gain at maturity

Question 26

Which form of income is partially exempt to a corporate investor?

Answer 26

• Dividend income from common stock and preferred stock

Question 27

When determining a wash sale, which 2/3 things need to be different for it to be ok?

Answer 27

• Maturity
• Issuer
• Coupon rate

Question 28

What are progressive taxes?

Answer 28

• Income

- Estate

Question 29

What are regressive taxes?

Answer 29

• Cigarettes

- Sales

Question 30

When a donor gives a gift, what is the cost basis?

Answer 30

The original cost of the gift (not the current value)

Question 31

What are the tax consequences when an investor donates appreciated securities to charity?

Answer 31

• Tax deduction

- No tax due on apreciation

Question 32

How much in net losses can be carried forward to next year?

Answer 32

Up to $3k

Question 33

Are husband and wife gifts subject to gift taxes?

Answer 33

NO!