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Question 1 of 10
1. Question
Which of the following statements is true regarding the provision within FINRA’s by-laws relating to retention of jurisdiction?
Correct
The provision within FINRA’s by-laws relating to retention of jurisdiction simply means that even after a member or associated person has resigned or had membership canceled or revoked, that former member or associated person will still be subject to the filing of a complaint under FINRA’s rules for any actions taken by the member or associated person prior to the resignation, cancellation or revocation of their membership. However, complaints may only be filed for up to 2 years following the effective date of the resignation, cancellation, or revocation.
Incorrect
The provision within FINRA’s by-laws relating to retention of jurisdiction simply means that even after a member or associated person has resigned or had membership canceled or revoked, that former member or associated person will still be subject to the filing of a complaint under FINRA’s rules for any actions taken by the member or associated person prior to the resignation, cancellation or revocation of their membership. However, complaints may only be filed for up to 2 years following the effective date of the resignation, cancellation, or revocation.
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Question 2 of 10
2. Question
Which of the following statements is true regarding NASD Rule 1030? “persons —-“
Correct
NASD Rule 1030 provides that “persons associated with a member, including
assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation, or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.”Incorrect
NASD Rule 1030 provides that “persons associated with a member, including
assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation, or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.” -
Question 3 of 10
3. Question
Which of the following statements is true regarding regulated investment
company?I. Files each year with its tax return an election to be considered a regulated
investment companyII. Has at least 90 percent of its income derived from dividends, interest,
paymentsIII. At the close of each quarter has at least 50 percent of its taxable assets
IV. All other securities are beyond having more
than 5 percent represented by any one issuerCorrect
As provided by Section 851 of the Internal Revenue Code, a regulated investment company is defined as a company that:
1. Files each year with its tax return an election to be considered a regulated
investment company
2. Has at least 90 percent of its income derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock of securities or net income derived from an interest in a
qualified publicly traded partnership
3. At the close of each quarter has at least 50 percent of its taxable assets
represented by cash, government securities, and securities of other regulated
investment companies, and all other securities are limited to having not more
than 5 percent represented by any one issuerIncorrect
As provided by Section 851 of the Internal Revenue Code, a regulated investment company is defined as a company that:
1. Files each year with its tax return an election to be considered a regulated
investment company
2. Has at least 90 percent of its income derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock of securities or net income derived from an interest in a
qualified publicly traded partnership
3. At the close of each quarter has at least 50 percent of its taxable assets
represented by cash, government securities, and securities of other regulated
investment companies, and all other securities are limited to having not more
than 5 percent represented by any one issuer -
Question 4 of 10
4. Question
Which of the following statements is true regarding Conduit theory?
Correct
The conduit, or pipeline, theory states that companies such as regulated investment companies and real estate investment trusts are merely pass-through entities for capital gains, dividends, and interest of the securities in which they invest, and thus should not be taxed at the corporate level. The purpose of this theory is to avoid the overtaxation of income, which would reduce the value of securities to investors.
Incorrect
The conduit, or pipeline, theory states that companies such as regulated investment companies and real estate investment trusts are merely pass-through entities for capital gains, dividends, and interest of the securities in which they invest, and thus should not be taxed at the corporate level. The purpose of this theory is to avoid the overtaxation of income, which would reduce the value of securities to investors.
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Question 5 of 10
5. Question
Which of the following statements is true regarding Internal Revenue Code?
I. a regulated investment company is required to distribute gross investment company taxable income
II. at least 90 percent of its gross investment company taxable income is distributed
III. also at least 80 percent of its tax-exempt interest income is distributed
IV. also at least 90 percent of its tax-exempt interest income is distributed
Correct
Pursuant to the Internal Revenue Code, a regulated investment company is required to distribute to its shareholders at least 90 percent of its gross investment company taxable income and at least 90 percent of its tax-exempt interest income.
Incorrect
Pursuant to the Internal Revenue Code, a regulated investment company is required to distribute to its shareholders at least 90 percent of its gross investment company taxable income and at least 90 percent of its tax-exempt interest income.
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Question 6 of 10
6. Question
Which of the following statements is true regarding the distribution requirements?
Correct
The distribution requirements ensure that the income is truly being
passed through to investors and not held at the regulated investment company level, thereby being deferred until a later date and causing a reduction in current revenue for the IRS.Incorrect
The distribution requirements ensure that the income is truly being
passed through to investors and not held at the regulated investment company level, thereby being deferred until a later date and causing a reduction in current revenue for the IRS. -
Question 7 of 10
7. Question
Which of the following statements is true regarding Taxation of regulated investment company?
I. pays taxes differently than normal companies
II. pays taxes only on an amount referred to as the investment company taxable income
III. It equals its taxable income offset by Capital gains
IV. The amount of ordinary, taxable income collected from its shareholders
Correct
A regulated investment company pays taxes differently than normal companies. Regulated investment companies pay taxes only on an amount referred to as the investment company taxable income, which equals its taxable income offset by:
1. Capital gains
2. The amount of ordinary, taxable income distributed to its shareholdersIncorrect
A regulated investment company pays taxes differently than normal companies. Regulated investment companies pay taxes only on an amount referred to as the investment company taxable income, which equals its taxable income offset by:
1. Capital gains
2. The amount of ordinary, taxable income distributed to its shareholders -
Question 8 of 10
8. Question
Which of the following statements is true regarding regulated investment companies?
Correct
Regulated investment companies are also taxed on their undistributed net capital gains and face an excise tax on certain amounts of undistributed income. Distributions from regulated investment companies are typically treated by shareholders as dividends of ordinary income, and thus taxed at dividend rates.
Incorrect
Regulated investment companies are also taxed on their undistributed net capital gains and face an excise tax on certain amounts of undistributed income. Distributions from regulated investment companies are typically treated by shareholders as dividends of ordinary income, and thus taxed at dividend rates.
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Question 9 of 10
9. Question
Which of the following statements is true regarding regulated investment company?
I. Pays a dividend with earnings and profits in a given year, the dividend is treated as a non-taxable return of capital
II. Pays a dividend but has no earnings and profits in a given year, the dividend is treated as a non-taxable return of capital
III. Pays a dividend but has no earnings and profits in a given year, the dividend is treated as a taxable return of capital
IV. It may increase a shareholder’s cost basis
Correct
However, a few exceptions do apply. If the regulated investment company pays a dividend but has no earnings and profits in a given year, the dividend is treated as a non-taxable return of capital, which will reduce a shareholder’s cost basis.
Incorrect
However, a few exceptions do apply. If the regulated investment company pays a dividend but has no earnings and profits in a given year, the dividend is treated as a non-taxable return of capital, which will reduce a shareholder’s cost basis.
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Question 10 of 10
10. Question
Which of the following statements is true regarding capital gains?
Correct
It is important to note that these requirements do not apply to capital gains. The purpose behind this requirement is that the regulated investment company is receiving preferential tax treatment in that it is not paying taxes on capital gains, dividends, and interest income and is only acting as a pass-through entity, so the investors in the regulated investment company will be the ones who ultimately pay the taxes.
Incorrect
It is important to note that these requirements do not apply to capital gains. The purpose behind this requirement is that the regulated investment company is receiving preferential tax treatment in that it is not paying taxes on capital gains, dividends, and interest income and is only acting as a pass-through entity, so the investors in the regulated investment company will be the ones who ultimately pay the taxes.