Unit 8 Quiz Review Tax and Yields Flashcards
What are the two basic types of returns on investment?
A. Dividends and interest
B. Capital gains and income
C. Interest and principal
D. Short term and Long term
B. Upon purchase of a security, the investors may receive dividends or interest, which are forms of income, or they may sell the security for a different price than was paid for it. It represents a capital gain or loss
LO
8.d
Your customer purchases 100 shares of JM, Inc ., a common stock at $74 per share on January 17,2020. The customer sells the shares for $89 per share on February 2,2021. The result of the sale is:
A. A $500 short- term capital gain
B. A $1000 long term capital gain
C. A $500 long term capital loss
D. A $500 long term capital gain
D. The formula for capital gains is sales proceeds - cost basis + gain or loss. For this problem $8000 - $7500 = $500 gain. This was held for more than one year so it is a long term gain.
Which of the following are true of long term or short term gains or losses?
A. Holding a stock and selling it above cost basis if over 12 months later would be a long term gain.
B. Holding a stick and selling below its cost basis if held for one year would be a long term loss
C. Holding a stick and selling it above its cost basis if held for one year would be a long term gain.
D. Holding a stick and selling below its cost basis if held for over a year would be a short term loss.
A. For the holding period to be long term it must be more than one year.
In the last year, a customer made the following four transactions:
Purchased 1,000 shares of ABC stock for $67 a share
Purchase 500 shares of DEF stock for $45 per share
Sold 1000 shares of ABC stock for $50 per share
Sold 500 shares of DEF stock for $55 per share
Which of these is the result of the years transaction?
A. $12,000 reduction in ordinary income
B$3,000 reduction in ordinary income and $9000 in carry - forward losses
C. 12,00 in capital gains
D.$3,000 reduction in ordinary income $12,000 in gains
B. The customer realized a $17,000 loss on ABC and a $5009 gain on DEF for a net loss of $12,000. The customer can use $3,000 to reduce ordinary income leaving $9,000in losses to carry forward.
Lo 8.e
A customer purchased 100 shares of GHI common stock for $20 per share. After a year, they sell the shares for $23 per share. Over the past two years, GHI has paid a $.25 quarterly dividend. What is the total return?
A. 10%
B. 25%
C. 15%
D. 20%
D.The formula for calculating total return is ( income + gains or - losses)/cost basis.)
For this question ( $1 + $3)/20=4/20=.20(20%). Note that the position will be held for only one year.
A customer purchased 100 shares of MNO common two years ago for $20 per share. They now sell the shares for $23 per share. Over the last two years MNO has paid a $.25 quarterly dividend. What is the total return?
A. 25%
B. 10%
C. 20%
The formula for calculating total return is ( income + gains or - losses)/ cost basis. For this question ( $2+ $3)/20=5/20=.(25).(25%). Note that the question does not ask for annualized return.
LO 8c
The customer purchased 100 shares of BOB common stock for a total of $3000. After one year, they sell the position for $3200. BOB paid $1 per share in dividends over the year. What is the total return?
A) 25%
B) 20%
C)15%
D) 10%
D. The formula for calculating total return is ( income + gains or - loses) cost basis. For this question ($100 +$200)/3000=300/3000 =.10(10%)
LO 8. c
A customer purchased 100 shares of MNO common stock two years ago for $20 per share. They now share the shares for $23 per share. Over the last two years, MNO has paid a $.25 quarterly dividend. What is the result of this closing transaction?
A. $300 long term gain
B. $500 short term gain
C. $500 long term gain
D. $300 short term loss
A. This question only asks about capital gains. The formula in sales proceeds- cost basis = gain or (loss). For this problem $2,300 - $2000= $300. There is only one answer that works, so the long vs short term is not required to answer this question.
XYZ Corp pays a quarterly dividend of$1. The common stock is currently valued at$160 per share. What is XYZ common stock dividend yield?
A. 5.0%
B. 1.0%
C. 7.5%
D. 2.5%
D. The formula for dividend yield ( or current yield) is annual income/ current market value. In this example you need to multiply the quarterly dividend by four to find the annual number: 4/160 =.o25(2.5%)
Which of the following best describes the calculation for gains or losses for tax purposes?
A. Proceeds plus cost basis
B. Proceeds plus dividends? Minus cost basis
C. Proceeds minus cost basis
D. Proceeds minus dividend, plus cost basis
Proceeds minus cost basis equals capital gains. The dividends are not part of the calculation for capital gains.
LO 8.b
Two years ago Lisa Smith sold short 100 shares at $50 per share and two years later bought them back for $55 per share. The stock paid a $2.50 dividend each year. How much did Smith gain or lose per share for tax purposes?
A. No gain or loss
B. A $5 gain
C. A $5 loss
D. A $10 gain
C. The formula to calculate a gain or loss for tax purposes is the proceeds minus the cost basis. Smith bought the shares at $55 and sold at $50. The dividends are not included in the calculation of gain or loss for tax purposes.
An investor had a long position in OMQ stock. After selling the stock at a loss, the investor could purchase which of the following and not violate the wash sale rule?
A. OMQ warrants
B. OMQ Put options
C. OMQ convertible bonds
D. OMQ call options
B. In order to avoid violating the wash sale rule, investors selling a stock at a loss cannot purchase that same, or substantially identical, security with in a 30 day period before or after the sale incurring the loss. Substantially identical would include anything that is exercisable or convertible into the same shares of stock, such as rights, warrants, call options, or a convertible bond. Purchasing the put options would not violate the wash sale rule bc these can be exercised to sell the stock, not purchase it.
A customer purchased 100 shares of GHI common stock for $20 per share. After a year, they sell the shares for $23 per share. Over the past 2 years, GHI had paid a.$25 quarterly dividend. What is the total return?
A.. 25%
B. 10%
C. 20%
D. 15%
C. The formula for calculating total return is ( income + gains or - losses)/ cost basis.
For this question ($1 + $3)/20= 4
4/20+.2
20%.
Note this position was only carried for one year.
Which of the following regarding income is true?
A. Salary, bonuses, interest, and dividends are all investment income
B. Salary ,bonuses ,interest, and dividends are all investment income
C. Salary or bonuses are portfolio income. Interest and dividends are investment income
D. Salary or bonuses are earned income; interest and dividends are investment income
D.
What are the two basic types of return on an investment?
A. Capital gains and income
B. Short term and long term
C. Dividends and interest
D. Interest and Principal
A. Upon the purchase of a security, the investors may receive dividends or intern. Which are forms of income, or they may sell the security for a different price than was paid for it,. Which represents a capital gains or loss.
