5th Set

Question 1

3 different forms dividends can be paid in

Answer 1

Cash, stock, or property

Question 2

T/F: Bonds issued by US territories (i.e Virgin Islands) are triple tax exempt

Answer 2

True

Question 3

T/F: For an investor, one of the major advantages of munis is that they are typically exempt from federal income tax.

Answer 3

True

No federal INCOME tax

Question 4

Are C corps double taxed?

Answer 4

Yes

C corps are double taxed

Question 5

If dividends from ADRs are paid in USD, who the investors still have currency risk

Answer 5

Even though paid in USD, dividends are still declared in foreign currency

Question 6

Can REITs trade OTC?

Answer 6

Yes, and on normal exchanges too

Question 7

75% of assets in a REIT must be invested in either income producing real estate or _____

Answer 7

Mortgages

Question 8

In order for a REIT to avoid taxation as a trust, it must distribute __% of it’s net operating income

Answer 8

90%

Question 9

T/F: Employers can contribute to a SEP IRA

Answer 9

True

Employers, not employees, make contributions to SEP IRAs, and the decision about whether and how much to contribute each year can vary.

Question 10

T/F: The statutory prospectus is the final prospectus

Answer 10

True

Final prospectus

Question 11

Give an example of a closed end fund

Answer 11

A muni bond fund

Question 12

T/F: Ginnie Mae, Freddie Mac, and Fannie Mae all issue mortgage backed securities

Answer 12

True

They issue MBS

(Sallie Mae does not, it’s for student loans)

Question 13

T/F: Sallie Mae issues mortgage backed securities

Answer 13

False

Sallie Mae is for student loans, etc.

Question 14

What does Beta measure

Answer 14

Volatility of the security compared to market as a whole

Market has beta of 1.0

Question 15

Is Sallie Mae backed by taxing power of the US government?

Answer 15

No

Sallie Mae is student loans

Question 16

T/F: Freddie Mac is publicly traded and issues pass through securities

Answer 16

True

Freddie Mac buys mortgages

Question 17

Customer statements must be sent at least once every ____

Answer 17

3 months, quarterly

If account has penny stocks then monthly

Question 18

T/F: all reinvestments of mutual fund dividends (and capital gains distributions) are at the NAV with no sales charge.

Answer 18

True

Don’t pay sales charge when reinvesting

Question 19

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?

Answer 19

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.

Question 20

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.

Answer 20

True

No income tax for LP, GP, or s corp

Question 21

Taxes on payments received from a 403b (tax sheltered annuity) plan

Answer 21

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.

Question 22

For a closed end investment company, is there a prospectus required after the IPO?

Answer 22

No

Unlike open end investment companies which require a prospectus

Question 23

What kind of shares can an open end investment company issue

Answer 23

Only common shares

Closed end can issue common, preferred and debt instruments

Question 24

What kind of securities can a closed end investment company issue?

Answer 24

Common shares, preferred shares, and debt instruments

Open-end companies can only issue common shares

Question 25

Are shares of a closed end investment company redeemable?

Answer 25

No

Shares in open end investment company are redeemable tho

Question 26

Are shares of an open end investment company redeemable?

Answer 26

Yes

The company must redeem shares

Question 27

When funds from a tax sheltered annuity plan (493b plan) are withdrawn how are they taxed?

Answer 27

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

Question 28

Min age to establish an IRA

Answer 28

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.

Question 29

Do open end investment companies (like mutual funds) trade in the secondary market?

Answer 29

No

No secondary market trading

Question 30

Do closed end investment companies trade in the secondary market?

Answer 30

Yes

After ipo shares trade in secondary market (exchanges or OTC)

Question 31

Maximum sales charge for open end investment companies

Answer 31

8.5% max sales charge

Question 32

What business type (s corp, c corp, LP, etc.) would have the easiest time opening an account at a member firm

Answer 32

Sole proprietorship

Since sole proprietorships are opened as individual accounts

Question 33

Who handles the registration of limited partner units

Answer 33

The syndicator

not the general partner

Question 34

If soliciting new customers to buy penny stocks, do you need to prepare a suitability statement?

Answer 34

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)

Question 35

When soliciting penny stocks, you don’t need to prepare a suitability statement if soliciting “established customers”. What is the definition of this term?

Answer 35

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.

Question 36

Max amount of capital losses that can be deducted form income in a single ta year

Answer 36

$3k

Can carry over any remaining losses to next years

Question 37

How can you remember what options companies use to save themselves against currency fluctuations?

Answer 37

Remember the acronym EPIC: Exporters buy Puts and Importers buy Calls.