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Question 1 of 10
1. Question
Regarding Portfolio diversification, if stock performs poorly, commodities maintain a (an):
Correct
If stocks are performing poorly, bonds tend to increase performance (negative correlation), while commodities maintain their performance (zero correlation).
Incorrect
If stocks are performing poorly, bonds tend to increase performance (negative correlation), while commodities maintain their performance (zero correlation).
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Question 2 of 10
2. Question
The following are true about sector rotation except:
Correct
Sector rotation is helpful to investors who wish exposure to multiple sectors but may not have the initial capital to invest in all the sectors that they desire. It is also a method of diversification of the investor’s portfolio over a specific time period. Some managers attempt to time the market to make short-term gains through sector rotation, with the assumption that certain sectors are more profitable at different times of the year.
Incorrect
Sector rotation is helpful to investors who wish exposure to multiple sectors but may not have the initial capital to invest in all the sectors that they desire. It is also a method of diversification of the investor’s portfolio over a specific time period. Some managers attempt to time the market to make short-term gains through sector rotation, with the assumption that certain sectors are more profitable at different times of the year.
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Question 3 of 10
3. Question
The following are advantages of Dollar-cost averaging except:
Correct
Dollar-cost averaging describes the practice of regularly investing a fixed amount in a given security, usually a mutual fund, without regard to the performance of the investment.
Incorrect
Dollar-cost averaging describes the practice of regularly investing a fixed amount in a given security, usually a mutual fund, without regard to the performance of the investment.
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Question 4 of 10
4. Question
Which of the following is true of a covered call?
Correct
A “covered call” is a call contract in which the seller owns the underlying security of the call which he or she is selling. This effectively produces risk-free income for the seller, because if the call is exercised the seller will only have to sell the security from his or her inventory of stocks and then usually at a profit over what was paid for the security. Many managers use this technique to provide risk-free income for retirees and other investors needing current income.
Incorrect
A “covered call” is a call contract in which the seller owns the underlying security of the call which he or she is selling. This effectively produces risk-free income for the seller, because if the call is exercised the seller will only have to sell the security from his or her inventory of stocks and then usually at a profit over what was paid for the security. Many managers use this technique to provide risk-free income for retirees and other investors needing current income.
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Question 5 of 10
5. Question
Which of these best explains implied volatility (IV)?
Correct
Implied volatility (IV), which is the estimated degree of volatility for a security’s price in the future—what various market factors imply about the security’s potential behaviour.
Incorrect
Implied volatility (IV), which is the estimated degree of volatility for a security’s price in the future—what various market factors imply about the security’s potential behaviour.
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Question 6 of 10
6. Question
Which of the following statements is/are false about Volatility?
I. It is the degree to which a security’s price has fluctuated wavered within a given time period.
II. Lower volatility increases the option premium, and vice versa.
III. The premiums for options is related directly to the volatility for the underlying security.
IV. It measures the changes in a security’s price over a prior time periodCorrect
Options volatility is the application of volatility measures to options transactions. The premiums for options is related directly to the volatility for the underlying security; higher volatility increases the option premium, and vice versa.
Incorrect
Options volatility is the application of volatility measures to options transactions. The premiums for options is related directly to the volatility for the underlying security; higher volatility increases the option premium, and vice versa.
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Question 7 of 10
7. Question
Which of the following statements is/are true?
I. If the bond has been held by the investor for greater than one year, the capital gain is considered long term and taxed at the lower long-term capital gains rate.
II. If it has been held for less than a year by the current holder, it will be taxed at the higher short-term capital gains rate, usually the investor’s current income tax rate.
III. Any capital gain from the sale of a bond that has appreciated is not taxable.
IV. Interest payments received from the coupon of a bond are considered income and are taxed an extra rate.Correct
Any capital gain from the sale of a bond that has appreciated is also taxable.
Interest payments received from the coupon of a bond are considered income and are taxed at the taxpayer’s normal rate.Incorrect
Any capital gain from the sale of a bond that has appreciated is also taxable.
Interest payments received from the coupon of a bond are considered income and are taxed at the taxpayer’s normal rate. -
Question 8 of 10
8. Question
Examples of exemptions of income earned and deductions that are disallowed includes which of the following?
I. Accelerated depreciation.
II. Tax-exempt interest on certain types of municipal bonds
III. Partnerships and annuities
IV. Tax-advantaged employee stock options.Correct
Exemptions of income earned and deductions that are disallowed include but are not limited to accelerated depreciation, tax-exempt interest on certain types of municipal bonds, and tax-advantaged employee stock options.
Incorrect
Exemptions of income earned and deductions that are disallowed include but are not limited to accelerated depreciation, tax-exempt interest on certain types of municipal bonds, and tax-advantaged employee stock options.
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Question 9 of 10
9. Question
Which of the following statements is / are false?
I. A condition where an investing taxpayer finds him or herself liable is termed AMT (Alternative Minimum Tax).
II. AMT is a preferable situation for investors as it assesses taxes on income that may have previously been tax advantaged.
III. The alternative minimum tax was written into the Internal Revenue code to prevent abuse of tax-advantaged investments by those with the means to do so.
IV. The tax advantages are disallowed, which raises the taxpayer’s taxable income and results in a higher tax bill in a situation of AMT.Correct
The alternative minimum tax is not a preferable situation for investors as it assesses taxes on income that may have previously been tax advantaged. The alternative minimum tax was written into the Internal Revenue code to prevent abuse of tax-advantaged investments by those with the means to do so.
Incorrect
The alternative minimum tax is not a preferable situation for investors as it assesses taxes on income that may have previously been tax advantaged. The alternative minimum tax was written into the Internal Revenue code to prevent abuse of tax-advantaged investments by those with the means to do so.
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Question 10 of 10
10. Question
Regarding Corporate Taxation, which of the following statements are true?
I. C-Corporations are not taxed at the corporate level.
II. C-Corporations are also taxed again when the profits are distributed to the shareholders.
III. S-Corporations are taxed on certain conditions.
IV. The individual or individuals to whom the income from the S-Corporation flowed are taxed.Correct
C-Corporations are taxed at the corporate level and then again when the profits are distributed to the shareholders.
S- Corporations are not taxed, but the individual or individuals to whom the income from the S-Corporation flowed are taxed.Incorrect
C-Corporations are taxed at the corporate level and then again when the profits are distributed to the shareholders.
S- Corporations are not taxed, but the individual or individuals to whom the income from the S-Corporation flowed are taxed.