Investment Returns

Question 1

Mutual fund dividend schedule

Answer 1

Declaration date (by board of directors)
(Record and payable date)
Ex-dividend date
Because settlement is same day

Question 2

Current yield formula

Answer 2

Current yield=annual income (in dollars) / CMV

Make sure to check whether the dividend is given as quarterly or annually

Question 3

Capital gains/loss formula

Answer 3

Capital gains/losses=sales proceeds - adjusted cost basis

Question 4

Adjusted cost basis

Answer 4

Amount paid for a position modified by adjustments, such as stock dividend

Question 5

Long term gains

Answer 5

Position must have been held for more than one year

Question 6

Short term gains

Answer 6

Position held for one year or less

Question 7

Total return

Answer 7

Measure of the return an investor receives from an investment that includes both income and any gain or loss realized. Expressed as a percentage of the cost basis of the investment.

Question 8

Total return formula

Answer 8

Total return=[income received + gains (or - losses)] / cost basis

Question 9

Ordinary income

Answer 9

Used to determine income tax rate an investor will pay.

Made up of earned income, investment income, and passive income

Question 10

Earned income

Answer 10

Includes salary wages, bonuses tips, and other income derived from active participation in a trade or business. Eligibility for IRA contributions is based on earned income.

Question 11

Investment income

Answer 11

Or Portfolio income; include dividends and interest payments. Income derived from an asset the investor holds.

Question 12

Passive income

Answer 12

Derived from certain investments, primarily direct participation programs such as limited partnerships and many real estate investments. May also produce passive losses. Passive losses can be used to offset income received in the same tax year.

Question 13

Long term capital gains

Answer 13

Taxed at an advantageous tax rate. Almost always lower than ordinary income tax rate.

Question 14

Short term capital gains

Answer 14

Taxed as ordinary income. Almost always higher than long-term capital gains rate

Question 15

Capital loss use

Answer 15

Capital losses may be used to offset capital gains on a dollar-for-dollar basis. Further, if losses that exceed gains in a given year, taxpayer may use up to $3000 of those losses to reduce ordinary income. If losses are in excess of gains and the $3000, the losses may be carried into the next tax year. Carryforward losses can be carried forward until used with no time limit.

Question 16

Wash Sale

Answer 16

An attempt to create a loss for tax purposes when one’s intent is to still maintain ownership of the securities. Any repurchase of the same security or substantially identical before or after the date of establishing the loss would be recognized as one’s intent to maintain ownership. If this occurs, the loss established at the time of the sale is disallowed. Prohibited wash sale

Question 17

Substantial identical

Answer 17

Any position that may be converted or exercised into the same security as one that sold for a loss may be “substantial identical”, including convertible bonds or preferred stock from the same issuer, or call options.

Question 18

Dow Jones Industrial Average

Answer 18

Most widely sited measure of the market’s performance in the popular press. Tracks the performance of 30 large, well-known companies

Question 19

Standard & Poors 500 Index

Answer 19

S&P 500 tracks slightly more than 500 stocks of large US companies and the basis for several index mutual funds and exchange traded funds (ETFs). The benchmark most professionals use when speaking about overall market performance

Question 20

Russell 2000 Index

Answer 20

Tracks approximately 2,000 small-company stocks and serves as the benchmark for smaller companies in the overall market.

Question 21

Wilshire 5000

Answer 21

Tracks more than 5K stocks and covers all the companies listed on the major stock markets, including all sizes across all industries. Considered the broadest measure of overall stock market performance. Closer to 3,500 components

Question 22

Barclays Capital US Aggregate Bond index

Answer 22

Composite index that combines several bond indexes to give a picture of the entire bond market.

Question 23

MSCI EAFE Index

Answer 23

Designed to measure equity market performance of developed (first world) markets outside the US and Canada. EAFE=Europe Australasia, and Far East. Most widely recognized index for foreign equities.