Question #1 of 33Gil Tabor, CFA, and Jan Sills, CFA, are discussing how the choice of account type a ects investment risk and the amount of that risk borne by the government via taxes..
Trang 1Question #1 of 33
Gil Tabor, CFA, and Jan Sills, CFA, are discussing how the choice of account type a ects
investment risk and the amount of that risk borne by the government via taxes Tabor says that
the government bears some of the tax risk in a tax-exempt account Sills says the government
bears some of the risk in a tax-deferred account before withdrawals occur With respect to
these assertions:
A) both Tabor and Sills are incorrect.
B) both Tabor and Sills are correct.
C) Tabor is correct and Sills is incorrect.
Question #2 of 33
If an investment is held in a tax-exempt account, then the investor bears:
A) all of the investment risk.
B) some of the investment risk.
C) none of the investment risk.
Question #3 of 33
An investor faces the periodic payment of investment income taxes With respect to the
relationship between investment horizon and investment return, the tax drag is:
A) positively related to the horizon and negatively related to the investment return.
B) negatively related to both the horizon and investment return.
C) positively related to both the horizon and investment return.
Question #4 of 33
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Trang 2In applying e cient frontier analysis for an investor who uses both taxable and tax-advantaged
accounts,
A) no considerations need to be made because total taxes will be the same in the long run.
B) constraints should be imposed to account for the limits that can be put in tax-exempt
accounts
C) the investor should set up two separate frontiers and optimize each in accordance with
the separation theorem
Question #5 of 33
Assume that €125,000 is invested in a tax-exempt account What is the after-tax balance in the
account after 15 years if the tax rate is 28% and the pre-tax return is 11%?
A) €598,074.
B) €392,138.
C) €465,613.
Question #6 of 33
If the tax rate is positive and there is periodic payment of investment income taxes, then which
of the following relationships is most accurate?
A) Tax drag > tax rate.
B) Tax drag < tax rate.
C) Tax drag = tax rate.
Question #7 of 33
With respect to the "heavy dividend" tax regime and the "heavy interest" tax regime, which if
either usually has a progressive ordinary income tax structure?
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Trang 3A) The heavy interest tax regime only.
B) Both.
C) The heavy dividend tax regime only.
Question #8 of 33
With respect to traders and active investors, which of the following statements is the most
accurate?
A) Active investors trade less frequently than traders so that many of their gains are taxed
at lower rates
B) Active investors trade more frequently than traders so that many of their gains are
taxed at lower rates
C) Active investors trade as frequently as traders but they use strategies that lead to their
gains being taxed at higher rates
Question #9 of 33
If an investment is held in an account that is taxed annually, the government bears:
A) some of the investment risk.
B) all of the investment risk.
C) none of the investment risk.
Question #10 of 33
An investor has €600,000 invested in equity in a TDA and €400,000 invested in bonds in a
tax-exempt account The relevant tax rate is 35% What is the investor's asset allocation on an
after-tax basis?
A) 69.8% in stocks and 30.2% in bonds.
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Trang 4B) 49.4% in stocks and 50.6% in bonds.
C) 44.9% in stocks and 55.1% in bonds.
Question #11 of 33
An individual, aged 40, is currently in the 25% marginal tax bracket, and expects to be in the
15% bracket when he retires Making contributions today to a tax-deductible individual
retirement account is an example of:
A) both minimizing the amount and deferring the timing of the tax payment.
B) minimizing the amount of the tax payment.
C) deferring the timing of the tax payment.
Question #12 of 33
Which type of equity investor recognizes all gains in the short term?
A) Exempt investors.
B) Active investors.
C) Traders.
Question #13 of 33
An investor holds the same investment in three di erent accounts Which of the following
accounts will have the lowest risk?
A) A TDA.
B) A tax-exempt account.
C) A taxable account.
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Trang 5Question #14 of 33
Chris Manning, CFA is advising a client concerning harvesting tax losses The client expects that
her tax situation will not change over the next few years She asks about incurring a given loss
in the current year or waiting a few years to incur the loss She asks how the decision will a ect
the total taxes she pays over her life Manning should advise her that:
A) the total tax bill over her life will not change if her tax status does not change.
B) she should not incur the loss this year because the HIFO principle means her total taxes
will be higher if she incurs the loss this year
C) she should incur the loss this year because the HIFO principle means her total taxes will
be lower if she does
Question #15 of 33
When highest-in- rst-out (HIFO) accounting is allowed, it is advisable for:
A) an investor to liquidate the portion of a position with the highest cost basis rst,
thereby minimizing current taxes
B) an investor to liquidate the portion of a position with the highest cost basis rst,
thereby minimizing future taxes
C) an investor to liquidate the portion of a position with the lowest cost basis rst, thereby
minimizing current taxes
Question #16 of 33
Which of the following has favorable tax treatment under a " at and heavy" tax regime?
A) Dividend income.
B) Interest income.
C) Capital gains.
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Trang 6Question #17 of 33
Which of the following moves by a government would most likely lead to the government taking
on more investment risk?
A) Tax regimes cannot shift investment risk.
B) Moving from a common progressive tax regime to a heavy dividend tax regime.
C) Moving from a heavy dividend tax regime to a common progressive tax regime.
Question #18 of 33
In a tax-exempt account, contributions to the account are made with:
A) pre-tax funds and reduce the investor’s current tax bill.
B) after-tax funds and reduce the investor’s current tax bill.
C) after-tax funds and do not reduce the investor’s current tax bill.
Question #19 of 33
With respect to active investors and the tax structure in many countries, which of the following
is the most accurate?
A) To o set their higher taxation, active investment managers must use tax-exempt
accounts
B) To o set their higher taxation, active investment managers must generate higher
pre-tax returns
C) As a result of their lower taxation, active investment managers can remain in business
even when they generate lower pre-tax returns
Question #20 of 33
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Trang 7The nation of Pensacola is best described as having a at and heavy tax regime Which of the
following assets would be most appropriate for Pensacola investors using a TDA?
A) Interest bearing, taxable bonds.
B) Tax-exempt bonds.
C) High dividend yielding stocks.
Question #21 of 33
The main bene t of tax-loss harvesting is:
A) reducing both current and future taxes.
B) saving on future taxes.
C) saving on current taxes.
Question #22 of 33
The tax rate is 34% An investment of $5,000 earns a pre-tax return equal to 8%, which is
taxable each year What will the investment be worth in ten years after taxes?
A) $8,364.00
B) $8,056.00
C) $7,124.00
Question #23 of 33
Sam Conner and Bill Pope live in di erent countries In Conner's country, there is a light capital
gain tax regime In Pope's country there is a heavy capital gain tax regime They both are
building diversi ed portfolios that hold non-dividend-paying growth stocks, dividend-paying
stocks, and coupon-paying bonds They both have a buy-and-hold strategy Which, if either,
would probably bene t the most from a tax-deferred account (TDA)?
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Trang 8A) Neither would bene t because tax-deferred accounts do little to enhance the returns of
diversi ed portfolios
B) Conner would bene t more than Pope.
C) Pope would bene t more than Conner.
Question #24 of 33
In applying e cient frontier analysis for an investor who uses both taxable and tax-advantaged
accounts, the mean-variance optimization:
A) cannot simultaneously determine both the weights in the available assets and their
location in the various accounts, but it can be done in a step-wise fashion Usually the
B) would simultaneously determine both the weights in the available assets and their
location in the various accounts
C) cannot simultaneously determine both the weights in the available assets and their
location in the various accounts, but it can be done in a step-wise fashion Usually the
Question #25 of 33
Among global tax regimes, the common progressive tax regime has a favorable tax treatment
for:
A) interest income, dividend income, and capital gain income.
B) interest income and dividend income but not capital gain income.
C) dividend income and capital gain income but not interest income.
Question #26 of 33
Which of the following most accurately describes the process for adjusting the returns when
applying e cient frontier analysis for an investor who uses both taxable and tax-advantaged
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Trang 9A) Accrual equivalent before-tax returns would be substituted for after-tax returns and
after-tax risk would be substituted for before-tax risk
B) Accrual equivalent after-tax returns would be substituted for before-tax returns and
after-tax risk would be substituted for before-tax risk
C) Accrual equivalent before-tax returns would be substituted for after-tax returns and
before-tax risk would be substituted for after-tax risk
Question #27 of 33
An investor who lives in a country with a at tax regime is trying to decide whether to open a
tax-deferred account or a tax-exempt account for retirement savings The investor would:
A) be indi erent between the two accounts as long as the at tax rate does not change.
B) choose a tax exempt account over a tax-deferred account if the investor thought her
income would be lower after retirement
C) choose a tax exempt account over a tax-deferred account if the investor thought her
income would be higher after retirement
Question #28 of 33
Assume that €125,000 is invested in a TDA What is the after-tax balance in the account after 15
years if the tax rate is 28% and the pre-tax return is 11%?
A) €392,138.
B) €430,613.
C) €598,074.
Question #29 of 33
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Trang 10On a graph where the risk is on the horizontal axis and the returns are on the vertical axis, the
existence of taxes on investment returns would probably shift the mean-variance optimization
portfolio:
A) down only, and there would not be a shift left or right.
B) down and to the right.
C) down and to the left.
Question #30 of 33
Of traders, active investors, and passive investors, which probably forgo the most tax
advantages of equity?
A) Passive investors.
B) Active investors.
C) Traders.
Question #31 of 33
The tax drag from both longer investment horizons and higher investment returns:
A) are unrelated, and each has a linear relationship with cash drag that is independent of
the other
B) have a multiplicative e ect, so that the tax drag amount increases rapidly as the
investment horizon and the returns increase
C) have an o setting e ect, so the tax drag can be zero in some cases where the
investment horizon and returns are greater than zero
Question #32 of 33
A stock is expected to increase in value from $500 to $1,000 over a ve-year period The
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Trang 11A) $781.00
B) $552.00
C) $860.00
Question #33 of 33
All else being equal, which of the following investors will have the highest future
accumulations?
A) An active investor.
B) A trader.
C) A passive investor.
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