Series 65

Study Question of the Week: August 13, 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 66. –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 7, Series 62, Series 65, and Series 66):

Your father bought 200 shares of stock in Acme Holdings in 1982 at $20 per share. On the day he died and left the shares to you, the stock was worth $45 per share. You sold all of the shares one month later for $48 per share. What is your tax burden on this sale?

Answers:

A. You pay long-term capital gains tax on $5600.

B. You pay long-term capital gains tax on $5000 and short-term capital gains on $600.

C. You pay long-term capital gains tax on $600.

D. You pay short-term capital gains tax on $5600.

Correct Answer: C. You pay long-term capital gains tax on $600.

Rationale: Your basis in these shares is their value on the day your father died (200 X $45 = $9000). Your proceeds from the sale are $9600. Your capital gain is $600, and the IRS treats this as a long-term capital gain.

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Study Question of the Week: July 23, 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 24, Series 26, Series 62, Series 65, and Series 66. –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 7, Series 24, Series 26, Series 62, Series 65, and Series 66):

Roth IRAs are more liquid than traditional IRAs in what way?

Answers:

A. they offer tax-free distribution

B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

C. there are a larger number of exceptions available to the early withdrawal penalty

D. there are no mandatory minimum distributions required

Correct Answer: B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

Rationale: Although Roth IRAs do offer tax-free distributions and have no mandatory minimum distributions, their advantage in liquidity lies in the ability of the account owner to withdraw all principal contributions at any time, including before age 59 1/2.

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

Study Question of the Week: June 11, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 63, Series 65, and Series 66. –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 63, Series 65, and Series 66):

Which of the following are likely to be exempt from state registration as an investment adviser under the Uniform Securities Act?

I. A certified public accountant (CPA) who reviews client asset allocations upon request

II. An individual representative of a firm that offers investment advice and management for a fee

III. A federally covered investment adviser

Answers:

A. I and II

B. I and III

C. I, II, and III

D. II and III

Correct Answer: C.

Rationale: Federal law and the Uniform Securities Act define investment advisers as people who provide investment advice in exchange for compensation of some kind, but there are several types of exemptions, including: an investment adviser representative (IAR) working for an investment adviser (so II is exempt); a bank, savings institution, or trust company; a lawyer, accountant, teacher, or engineer whose provision of investment advice is incidental to their profession (so the CPA is exempt); a broker-dealer or its agents if the provision of investment advice is incidental to its business of buying and selling securities and not directly compensated; a publisher of a bona fide publication of general and regular circulation; a federally covered investment adviser (III is exempt). If the RIA is federally covered (registered with the SEC as an RIA), then it does not have to register at the state level. However, any of its IARs doing business in the state are required to register.

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

Study Question of the Week: May 9, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, and Series 66. –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 7, Series 62, Series 65, and Series 66):

An investor wishing to hedge a short position AND put a little extra cash in his pocket at the same time will…

Answers:

A. Buy calls on the stock

B. Buy puts on the stock

C. Sell calls on the stock

D. Sell puts on the stock

Correct Answer: D. Sell puts on the stock

Rationale: Short sellers are bears; thus, they need to take a bullish position to hedge a short one. This can be done by buying calls or selling puts. Buying calls, however, takes money OUT of your pocket, while selling puts puts money IN your pocket.

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

Study Question of the Week: May 1, 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, Series 66, Series 79, 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 7, Series 62, Series 65, Series 66, Series 79, and Series 82):

Which of the following Treasury securities does not pay interest semi-annually?

Answers:

A. T-bills

B. T-notes

C. T-bonds

D. TIPS

Correct Answer: A

Rationale: Treasury bills, or T-bills are issued at a discount from the par value (face value) and the interest payment is paid one time, on maturity, and it is the difference between the par value and the purchase price. T-notes, T-bonds and TIPS pay interest semi-annually (twice a year).

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

Study Question of the Week: April 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, Series 66, 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 7, Series 62, Series 65, Series 66, and Series 82):

Ten years ago, Janice bought 100 shares of Humdrum Inc. at $70 per share. The price of the stock has declined and this year she decides to sell the stock at $25. A week after she sells the stock, Humdrum announces an exciting new product called Humdinger and Janice decides Humdrum is a stock she wants to own after all and she buys 100 new shares of Humdrum at $30. Which of the following is true?

Answers:

A. Janice can claim a $45 per share loss on her tax return

B. Janice can claim a $40 per share loss on her tax return

C. The basis of the new shares will be $75

D. The basis of the new shares will be $55

Correct Answer: C

Rationale: According to IRS rules, if you sell a security at a loss and then buy back the same securities within 30 days, any loss on the sale of the original securities is disallowed. This is called a Wash Sale. However, you are permitted to capture the loss by adding it to the basis of the new shares. Therefore, the basis of the new shares will be $30 (purchase price) + $45 (per share loss on sale of old shares) = $75.

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Study Question of the Week: April 17, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 79, Series 82, and Series 99. –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 7, Series 62, Series 65, Series 79, Series 82, and Series 99):

A reverse stock split:

I. Reduces the value of shareholder equity

II. Requires SEC approval

III. May be done to maintain an exchange listing and to attract institutional investors

IV. Can result in fewer shareholders

Answers:

A. II, III

B. III, IV

C. I, II

D. I, IV

Correct Answer: B. III, IV

Rationale: A reverse stock split is the opposite of a stock split, so instead of ending up with more shares in the case of a stock split, in a reverse stock split shareholders end up with fewer shares. For example, in a 1 for 3 reverse split, shareholders receive one new share for three old shares, but the value of each share increases proportionately resulting in an increase in the value of each share but no change in the value of shareholder equity. The increase in the share price is a primary reason for reverse stock splits; a common reason for the reverse split is to keep a share price above some exchange-required minimum share price, such as $1. A higher share price is also desirable because it can broaden the base of potential investors to include institutions which may be prohibited from purchasing low-priced stocks. Stock splits are governed by state law and by company bylaws, they do not require SEC approval. Reverse stock splits that involve large reductions in the number of shares, for example a 1 for 100 reverse split, may result in shareholders not having enough of the old shares to exchange in return for the new shares, when this happens the shareholders are paid cash for their shares. This results in an overall reduction in the number of shareholders.

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

Study Question of the Week: April 9, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 24, Series 62, Series 65, Series 66, and Series 79. –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 24, Series 62, Series 65, Series 66 and Series 79):

From an owner’s perspective which business structure offers the most flexibility in profit retention?

Answers:

A. S corporation

B. LLC

C. Partnership

D. C corporation

Correct Answer: D. C corporation

Rationale: S corporations, LLCs and partnerships are pass-through tax entities. This means that profits and losses are allocated to the owners and reported on their individual tax returns, regardless of whether earnings have been distributed or retained. In contrast, a C corporation, the traditional corporate entity, may distribute earnings via dividends or keep the profits in the business as retained earnings without the earnings being taxed to the owners’ individual returns.

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

Study Question of the Week: April 3, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 62, Series 65, Series 66, and Series 79. –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 62, Series 65, Series 66 and Series 79):

All of the following are true of futures contracts except:

Answers:

A. A futures contract is an agreement to buy or sell an asset at a future date

B. Futures contracts are traded on exchanges

C. Futures contracts trade in standard units

D. Purchasing a futures contract represents a right to do something rather than an obligation to do something

Correct Answer: D

Rationale: A futures contract is an agreement to buy or sell an asset at a future date. Futures contracts trade on exchanges in standard amounts. For example, 5,000 bushels of soybeans is one futures contract. Futures contracts are different from options contracts because they always involve an obligation on both sides of the contract. For example, purchasing a futures contract represents an obligation to deliver or receive an asset on a future date. If the buyer does not want to receive the asset on this date, he can trade the position before the exercise date.

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

Study Question of the Week: March 27, 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 7, Series 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 and III

B. I and II

C. II and III

D. II and IV

Correct Answer: C

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. Zeros do not pay interest each year, instead interest is paid in a lump sum at maturity. For this reason, investors in zeros do not have to worry about the risk of having to reinvest their interest payments at a lower rate (reinvestment risk).

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