Study Question of the Week: January 24, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7Series 62, Series 65, and Series 82):

“Phantom tax exposure“ is a characteristic of:

I.  T-bonds

II.  Treasury STRIPS

III.  Zero-coupon bonds

IV.  Municipal revenue bonds

 Answers:

A. I, II and III

B. I and IV

C. II and III

D. None of the choices listed

Correct Answer: C. II and III

Rationale:  Treasury STRIPS, which are sold at a discount and don’t pay annual interest to owners, are a type of zero coupon bond.  Zeroes are taxed each year based upon the imputed annual value of the cumulative interest earned.  “Phantom tax exposure“ means you pay taxes each year on interest you don’t receive.  The trade-off is that you avoid reinvestment risk along the way.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

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