Investments Flashcards
Who would NOT invest in preferred stock?
An individual in a high tax bracket - b/c preferred stock pays high dividends
Who would invest in preferred stock?
1) Pension plan
2) Individual in a low tax bracket
3) Regular C Corp w/ excess funds (b/c would get exclusion of 50% or more of dividend income)
Who would invest in a mortgage REIT?
A SEP (retirement plan) as to defer income
Who would NOT invest in a mortgage REIT?
1) Individual in a high tax bracket
2) Regular C Corp
3) S Corp (b/c conduit to shareholders)
How do you determine which stock is less risky given the average mean and standard deviation of each?
Standard Deviation/average mean = the coefficient of variation
–Choose the lowest COV
How do you determine the duration of 2 bonds?
(% of holdings in Bond A x Duration of Bond A) + (% of holdings in Bond B x Duration of Bond B)
If given the P/E of a stock, and the earnings per share, what is the appropriate value of the stock?
Value = P/E x EPS
This tells you if a stock is overvalued or undervalued
How do you determine how much investment interest (margin interest) can be deducted?
Investment interest can be deducted up to the amount of income from investments - including interest, non-qualified dividends, and short-term gains
**Do not include qualified dividends or l-t capital gains
Hobby or business?
Person must make a profit in 3 out of 5 consecutive years to be considered a business, and to be able to write off losses/expenses. If a hobby, still have to report any income.
How do you determine amount of AMT payable?
AMT - Regular tax = AMT due
Office equipment is what type of 1245 property?
7 year 1245 property
If a person works, and owns a rental property, can he write off losses from the rental?
He/She can only write off the losses if regular income < $150,000
If the payee spouse owns the life insurance policy on the life of the payor, will the policy payments made by the payor qualify as alimony?
Yes, if the payments are made under the divorce instrument
What provisions are shared between target benefit plans and defined contribution plans?
Forfeitures may be reallocated or used to reduce employer contributions
Under Black-Scholes option pricing model, what happens to the value of the call options when the strike price increases?
An increase in the Strike Price decreases the value of the Call Option.
