Any person who willfully acts in violation of the Securities Act of 1933, or any SEC rule, is subject to a penalty of:
Any person who willfully acts in violation of the Securities Act of 1933, or any SEC rule, is subject to a penalty of 5 years in prison or a $10,000 fine, or both.
Which of the following retirement plans requires the employer to match employee contributions in accordance with specific guidelines?
The retirement plan that requires the employer to match employee contributions in accordance with specific guidelines is the SIMPLE IRA. SIMPLE is an acronym for Savings Incentive Match Plans for Employees. Although some employers offer some sort of matching contribution to 401(k) participants, it is not required that they do so. A Section 457 plan is a deferred compensation plan.
Liz is a new client of yours. She is 36 years old, single, and has been working and earning a nice salary since her graduation from high school. She has been contributing the maximum allowed to a TSA plan through her employer, and you have no reason to doubt that she will meet her stated goal to retire when she is 58. She also has a good health care plan through her employer and is in excellent health. She has been depositing her non-retirement savings in a money market fund and is not pleased at the pathetic return she has been earning on her current balance of $140,000. Liz has been reading some articles on the web and understands she could allocate her funds to receive a higher return. She's willing to take on a moderate level of risk, but needs your help. She informs you that she does plan to use $40,000 of her current savings as a down payment for a condo and that her investment goals are to have money available for travel and for unexpected expenses and periodic purchases such as new cars and new furniture as the needs arise. She pays taxes at the highest marginal tax rate for individual tax payers.
Based on these facts, which of the following asset allocations would best meet her needs?
i. Money market fund: 30%; investment-grade corporate bonds: 20%; blue-chip stocks: 20%; high-yield bonds: 10%; small cap stocks: 10%; foreign stocks: 10%
ii. Money market fund: 10%; investment-grade municipal bonds: 5%; blue-chip stocks: 25%; high-yield bonds: 25%; small cap stocks: 10%; foreign stocks: 25%
iii. Money market fund: 10%; investment-grade municipal bonds: 25%; growth stocks: 40%; small cap stocks: 15%; foreign stocks: 10%
The portfolio described in Selection III would be the best choice for Liz. She has little need for liquidity, so the allocation to a money market fund is only 10%. Another 40% of the allocation is in investment-grade municipal bonds and blue-chip stocks, with only 25% allocated to the riskier asset classes of foreign stocks and small caps. This meets her stated willingness to take on only a moderate level of risk. The large percentage that is allocated to municipal bonds is intended to provide her with federal tax-free interest income since she is in such a high marginal tax bracket -income that she can use for traveling and for those unexpected and periodic expenses, perhaps. The 45% allocation to growth stocks and small caps will also serve as a tax shield since these categories of stocks pay little, if any, dividends that would be taxed. Liz will only have to pay tax on capital gains when she chooses to sell these assets. The portfolio described in Selection I has far too much invested in a lower-yielding money market fund for someone who doesn't need much liquidity. Portfolio II has 60% invested in high risk securities-junk bonds, small caps, and foreign stocks-with a full 50% invested in junk bonds and foreign stocks. This would be an inappropriate allocation for an investor who is willing to accept only a moderate level of risk.
Which of the following are included in the expense ratio of a fund?
i. 12b-1 fees
ii. brokerage costs incurred by the fund when it buys and sells securities
iii. redemption fees
IV. management fees
Of the selections, only 12b-1 fees and management fees are included in the expense ratio of the fund. Brokerage costs that the fund incurs when it buys and sells securities are not included (which is why a fund's turnover ratio is important to consider.) Redemption fees are paid by the shareholder to the fund, so it would not be included in a fund's expense ratio since it is not an expense of the fund.
Which of the following are fiscal policy tools under the jurisdiction of the U.S. Congress?
The decision on whether to raise or lower effective tax rates is a fiscal policy tool under the jurisdiction of the U.S. Congress. The decision on the amount of cash reserves a bank must hold (the reserve requirement) and the decision on whether to raise or lower the rate at which banks can borrow money from the Federal Reserve (the discount rate) are monetary policy tools under the jurisdiction of the Federal Reserve.
The premiums paid on which of the following are paid into the general account of an insurance company?
i. whole life
ii. universal life
iii. term life
IV. variable life
Only the premiums paid on whole life, universal life and term life are paid into the general account of an insurance company. Variable life premiums go into the separate account.
In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:
If Amazon.com is selling for $147 and the strike price on the option is $160, the call option is said to be out of the money since, even if an investor were given the option free, he would not benefit from exercising it at this time. If he did so, he would be paying $160 for a stock that is selling for only $147 on the open market. Even so, the option is not necessarily overpriced at $6.10 because the option has what is known as ''time value'' on it. The stock of Amazon.com has several months during which it could rise well above the $160 strike price on the option.
Which of the following would be required to register as an investment company?
i. a non-diversified management company
ii. a unit investment trust
iii. a face-amount certificate company
All three choices must register as an investment company since all meet the definition of an investment company under the Investment Company Act of 1940. A management company refers to either a closed-end or an open-end investment company, both of which must register, regardless of the diversification of their investments.
Upon receiving approval via a majority vote of its shareholders, a mutual fund is permitted to:
Upon receiving approval via a majority vote of its shareholders, a mutual fund is permitted to change from a diversified company to a non-diversified company. The fund is not allowed to engage in margin transactions, fail to make dividend and capital gain distributions, or issue preferred stock under any circumstances.
Tex Payor is an investor in the Invest4U Mutual Fund. The manager of the fund, fearing a substantial decline in the stock market, sold a lot of the fund's holdings to lock in profits. As a result, the fund earned a lot of long-term capital gain income.
Which of the following statements is true regarding the tax treatment of this income?
Tex must pay taxes on that portion of the long-term capital gain income that Invest4U distributes to him. Invest4U is required to distribute at least 98% of its capital gain income to its shareholders.
Which of the following plans does not have the requirement that its participants must begin withdrawing funds from the plan by April 1st of the year after they turn 70 ?
i. SIMPLE IRA II. 401(k)
iii. Roth IRA
IV. profit-sharing plan
The Roth IRA does not have the requirement that its participants must begin withdrawing funds from the plan by April 1st of the year after they turn 70 . The Roth IRA does, however, have a mandatory distribution requirement that goes into effect if the participant dies.
Common stock and preferred stock differ in that:
Common stock and preferred stock differ in that preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything. Neither preferred stock nor common stock dividends are legal obligations of the firm. Preferred stock typically pays a fixed dividend that does not vary with the firm's earnings, while the common stock dividend may.
Except in special circumstances specified in the preferred stock agreement, preferred shareholders have no voting rights.
Which of the following share classes do not have front-end loads?
Neither Class B nor Class C shares have front-end loads. Class B and Class C shares typically have higher 12b -1 fees, however, with Class C having the highest 12b-1 fees of the three classes.
Ms. Pye has quit her job to become a full-time mother and wants to roll over the funds from her 401(k) plan into an IR
If Ms. Pye wants to rollover the funds from her 401(k) plan into an IRA, you should tell her that if she has the funds transferred directly from her 401(k) plan to the IRA, she will avoid having 20% withheld. She will not have to pay either taxes or a penalty on the funds that are rolled over if she follows specified guidelines, and if she opts to take possession of the funds herself prior to depositing them in the IRA account, she has 60 days in which to do so before a 10% penalty is assessed.
An ADR is:
An ADR is a receipt designating ownership of shares of a foreign stock that are held in a trust. The acronym stands for American Depository Receipt.
