Fundamentals of Financial Management, Concise Edition
10th EditionEugene F. Brigham, Joel Houston
777 solutions
Accounting: What the Numbers Mean
9th EditionDaniel F Viele, David H Marshall, Wayne W McManus
345 solutions
Essentials of Investments
9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie
689 solutions
Intermediate Accounting
16th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
2,308 solutions
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Terms in this set (45)
An option contract has intrinsic value if exercise is profitable to the:
A. holder, ignoring the premium paid
B. writer, ignoring the premium received
C. holder, including the premium paid
D. writer, including the premium received
The best answer is A.
Intrinsic value is the profit to the holder that would result from an exercise (ignoring premiums paid). Intrinsic value is the same thing as the "in the money" amount.
Which of the following contracts is "out the money" by the greatest amount?
A. ABC Jan 50 Call when the market price of ABC stock is 55
B. ABC Jan 50 Call when the market price of ABC stock is 45
C. ABC Jan 50 Put when the market price of ABC is 50
D. ABC Jan 50 Put when the market price of
ABC is 45
The best answer is B.
Calls go "in the money" when the market price rises above the strike price, thus Choice A is in the money by 5 points. Calls go "out the money" when the market price falls below the strike price, thus Choice B is out the money by 5 points. Puts go "in the money" when the market price falls below the strike price. Choice D is "in the money" by 5 points. Choice C is an "at the money" contract, where the market price and strike price are the same, for no profit or loss on exercise to the holder.
Which statements are TRUE about option contracts?
I Calls go "out the money" when the market price rises above the strike price
II Calls go "out the money" when the market price falls below the strike price
III Puts go "out the money" when the market price rises above the strike price
IV Puts go "out the money" when the market price falls below the strike price
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is C.
An "out the money" contract is one, that if exercised, would result in an unprofitable stock trade to the holder. These contracts are left to expire unexercised. Calls go "out the money" when the market price falls below the strike price. The call holder would not exercise and buy the stock at a strike price that is higher than the current market. Puts go "out the money" when the market price rises above the strike price. The put holder will not exercise and sell stock at the strike price that is lower than the current market price.
In November, a customer sells 1 ABC Jan 55 Call @ $7 when the market price of ABC is $58. The breakeven point for the position is:
A. $58
B. $62
C. $65
D. $68
The best answer is B.
The writer of a call must lose the $7
in premiums received in order to breakeven. When the market goes to $62, the $7 will be lost (buy the shares at $62 and deliver the shares at $55) and the customer would breakeven at this point. To summarize, the formula for breakeven on a short call is:
Short Call B/E = Strike Price + Premium
A customer sells 1 ABC Jul 45 Put at $5 when the market price of ABC is $43. ABC stock rises to $53 and stays there through July. The customer:
A.
gains $300
B. loses $500
C. gains $500
D. loses $800
The best answer is C.
If the market rises to $53, the put expires "out the money" (since the strike price is $45). The writer keeps the $500 collected in premiums.
A customer sells 2 ABC Jan 60 Puts @ $4 when the market price of ABC is $59. The maximum potential loss for the customer is:
A. $400
B. $800
C. $11,200
D.
$12,000
The best answer is C.
If the market goes to zero, the put writer will experience the maximum potential loss. The writer of the puts will be exercised, forcing him to buy worthless stock at the $60 strike price. However, the customer has received $4 per share in premiums. The net loss is $56 per share x 200 shares = $11,200.
A customer buys 1 ABC Jul 40 Put at $9 when the market price of ABC is $35.
The customer's maximum potential gain is:
A. $3,100
B. $4,000
C. $4,900
D. unlimited
The best answer is A.
The maximum gain for the holder of a put occurs if the market goes to "0." If it does, the customer can sell the stock at $40 and purchase it for nothing. Since the customer paid $900 in premiums for this right, the maximum potential gain is: $4,000 - $900 = $3,100.
A customer sells
short 100 shares of ABC stock at $40 and buys 1 ABC Mar 40 Call @ $5. The maximum potential loss is:
A. $500
B. $3,500
C. $4,500
D. unlimited
The best answer is A.
The long call limits loss on the short stock position in a rising market. The stock was sold for $40 and can be bought back at $40 by exercising the call. The only loss to the customer is the premium paid of 5 points or $500.
A
customer owning 100 shares of stock could receive protection by:
A. buying another 100 shares of the stock
B. buying a call
C. buying a put
D. selling a put
The best answer is C.
In order to hedge a long stock position against a downside market move, the best choice is to buy a put. The long put option allows the holder to put (sell) the stock at the exercise price if the market falls - protecting the stock position from downside market risk.
A customer buys 100 shares of ABC at $64 and buys 1 ABC Jan 65 Put @ $3. At which market price is the position profitable?
A. $65
B. $66
C. $67
D. $68
The best answer is D.
The customer must recover the $3 paid in premiums and the $64 paid for the stock (total of $67). He or she must sell the stock in the market above $67 to have a profit. The only price listed above 67 is Choice D - 68.
A customer buys 100 shares of ABC stock at $56 and buys 1 ABC Jul 55 Put @ $2.50 on the same day The breakeven point is:
A. $52.50
B. $57.50
C. $58.50
D. $60.50
The best answer is C.
Since the customer paid $56 for the stock and paid a premium of $2.50 to buy the put, the total money outlay is $58.50. To breakeven, the stock must be sold for this price. To summarize, the formula for breakeven for a long stock / long put position is:
Long Stock/ Long Putt B/E =
Stock Cost + Premium
A customer sells short 100 shares of ABC stock at $62 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is:
A. $600
B. $5,600
C. $6,000
D. unlimited
The best answer is D.
If the market rises, the short put expires and the short stock position must be covered by making a purchase in the market. The loss potential is unlimited.
A customer buys 100 shares of ABC stock at $39 and sells 1 ABC Jan 45 Call @ $2 on the same day in a cash account. The customer's maximum potential loss is:
A. $200
B. $3,700
C. $4,000
D. unlimited
The best answer is B.
If the stock drops, the call expires "out the money." As the stock keeps dropping, the customer loses more and more on the stock position. Because she effectively paid $3,700 ($39 price - $2 premium collected) for the stock, this is her maximum potential loss.
Which of the following option positions is used to generate additional income against a long stock position?
A. long call
B. short call
C. long put
D. short put
The best answer is B.
A covered call writer owns the underlying stock position. The customer sells the call contract to generate extra income from the stock during periods when the market is expected to be stable. If the customer expects the market to rise, he or she would not write the call against the stock position because the stock will be "called away" in a rising market. If the customer expects the market to fall, he or she would sell the stock or buy a put as a hedge. The customer would not sell a put to generate extra income against the long stock position, because if the market falls, the customer would be exercised on short put, and thus would have to buy another 100 shares at the strike price. Thus, in a declining market, the customer would lose double.
A customer buys 200 shares of ABC at $68 and sells 2 ABC 70 Calls @ $3. The market rises to $80 and the calls are exercised. The customer has a:
A. $300 gain
B. $600 gain
C. $1,000 gain
D. $2,000 gain
The best answer is C.
If the calls are exercised, the stock (which cost $68 per share) must be sold at the $70 strike price for a $2 gain x 200 shares = $400. The customer also received $300 per contract for selling the calls, for a total of $600 in premiums received. Therefore, the total gain is $400 + $600 = $1,000.
Which of the following strategies has unlimited loss potential?
A. long stock / short call
B. long stock / long put
C. short stock / long call
D. short stock / short put
The best answer is D.
With a long stock position, the maximum loss is the value of the stock. With a short stock position, the potential loss is unlimited. If a long call is purchased against a short stock position, the upside loss is limited. If a short put is sold against a short stock position the upside loss is still unlimited since in a rising market the short put will expire "out the money." The short stock position must be covered by purchasing the stock at the higher market price - and the price can rise an infinite amount.
A customer buys a listed stock option in a regular way trade and exercises that same day. The Options Clearing Corporation will assign the exercise notice to a writer on:
A. that day
B. the next business day
C. the 2nd business day after exercise date
D. the 5th business day after exercise
date
The best answer is B.
An exercise notice may be placed by a customer immediately upon the purchase of a call or put contract. However, the Options Clearing Corporation will not assign the exercise notice until the purchase of the option settles - and this occurs the next business day for a regular way options trade. Once the assignment occurs, the stock must be delivered to the holder of the call; or the stock must be delivered to the writer of the put; 2 business days after assignment.
Which of the following are standardized for listed option contracts?
I Strike price
II Contract size
III Premium
IV Expiration date
A. I and II only
B. III and IV only
C. I, II, IV
D. I, II, III, IV
The best answer is C.
Exchange traded option contracts have standardized contract sizes (e.g., 100 shares of stock), expiration dates (the 3rd Friday of the month), and strike prices (generally 5 point strike price intervals). The premium or "price" of the option is determined minute by minute in the trading market.
The November stock option contracts of a company assigned to Cycle 1 have just expired. Which contracts will commence trading on the CBOE?
A. December
B. January
C. April
D. July
The best answer is D.
The options cycles are:
Cycle 1 Jan Apr Jul Oct
Cycle 2 Feb May Aug Nov
Cycle 3 Mar Jun Sep Dec
Cycle 1 contracts are issued for the months of Jan - Apr - Jul - Oct. One can always get a contract for this month, next month, and the next 2 months in the Cycle. In November, prior to expiration, the contracts that will trade are November (this month), December (next month), January and April (the next 2 months in the cycle). After November contracts expire, the contracts that will trade are
December (this month), January (next month), April and July (the next 2 months in the cycle).
If an SPX options contract is exercised, then the:
A. holder must deliver cash to the writer the next business day
B. writer must deliver cash to the holder the next business day
C. holder must deliver the securities in the index to the writer in 2 business days
D. writer must deliver the securities in the index to the holder in 2
business days
The best answer is B.
Unlike stock options, if there is an exercise of an index option, the writer must pay the holder the "in the money" amount the next business day. There is no physical delivery of the underlying securities in the benchmark index. Remember that the holder will only exercise if the contract is "int he money," and therefore is profitable to the holder.
Note, for your information, that the SPDR is the S&P 500 Depository Receipt - it is one of the most popular exchange traded funds (ETFs) based on the S&P 500 Index
A client has an options account that is qualified to buy options and sell covered calls. The client calls his representative, telling him that he wants to sell naked calls in the account. Which statement is TRUE about this?
A. The representative can do this without taking any further action
B. The "Special Statement for
Uncovered Options Writers" must be provided before executing the transaction
C. The "Options Disclosure Document" must be provided before executing the transaction
D. The representative must open a separate options account for the customer and segregate the resulting naked options positions
The best answer is B.
Most firms have a structure for options account qualification that codes accounts as Level 1, 2, 3 or 4.
- A Level 1 account can only
sell covered calls (the most conservative and popular options strategy) or buy puts to hedge existing stock positions;
- A Level 2 account can also buy calls and buy puts to speculate;
- A Level 3 account can also take spread positions; and
- A Level 4 account can do anything, both covered or naked.
For a customer to move up in Level, the suitability determination must be redone and the ROP (Registered Options Principal) must reapprove the account. To move to Level 4, the customer
must also be given the "Special Statement for Uncovered Options Writers." This discloses that:
- Naked call writers have unlimited risk and naked put writers have substantial risk.
- If the broker demands additional margin due to an adverse market move, the broker may liquidate customer positions without prior notice if such margin payment is not received.
- If a secondary market in options were to become unavailable, the writer would be subject to exercise at any time until expiration
of the contract.
- Uncovered option writing is only suitable for the knowledgeable investor who understands the risks and has the capacity to absorb substantial losses and has sufficient liquid assets to meet margin requirements.
- The writer of an American style option is subject to exercise at any time, whereas the writer of a European style option is only subject to exercise during the exercise period.
A woman in the 15% tax bracket
wishes to buy a municipal bond. The registered representative tells her that such an investment is not appropriate. The registered representative can execute the trade:
A. if the principal approves
B. if the manager approves
C. under no circumstances
D. at the specific direction of the customer
The best answer is D.
Under an MSRB interpretation, if a customer directs a registered representative to do a trade that the representative believes is inappropriate, the representative must inform the customer of his or her objections; and if the customer still directs that the trade be performed, then the representative must execute the trade. We call this the MSRB "Do It!" rule.
Which of the following information is needed to open a new customer account?
I Customer occupation and employer
II Whether the customer is an officer or director of a publicly held company
III The
customer's country of citizenship
IV The customer's birthdate
A. I and II only
B. III and IV only
C. I and IV only
D. I, II, III, IV
The best answer is D.
To open a new account, the customer must be asked his or her occupation and employer, since special procedures must be followed to open an account for an employee of another brokerage firm. The customer must be asked his or her birthdate (they must be old enough to legally open the account); must be asked whether he or she is an officer or director of a publicly held company (since special procedures are needed for this person to trade that company's stock); and must be asked his or her country of citizenship. Citizenship is required because if the customer is a non-U.S. citizen, a copy of the customer's passport must be obtained under the PATRIOT Act and the customer must have a U.S. tax identification number.
The FINRA
suitability rule requires all of the following EXCEPT:
A. Reasonable Basis Suitability
B. Customer-Specific Suitability
C. Quantitative Suitability
D. Qualitative Suitability
The best answer is D.
FINRA requires that suitability determinations include multiple levels of review. These are:
Reasonable Basis Suitability: This is a review of the features, returns, costs and risks of the recommended product or strategy. Only those products
with the best combination can be recommended to clients. In essence, this rule requires that firms have an internal "recommended list" that has completed this review.
Customer-Specific Suitability: Once the recommendation has completed "reasonable basis" suitability, that does not mean that it can be recommended to all customers. To recommend it to a customer requires that "customer-specific" suitability be determined.
Quantitative Suitability: A single recommendation might be suitable for
a customer, however a large number of similar recommendations might not be. It all depends of the customer's objectives, needs, and ability to pay for the recommended transactions.
There is no such thing as "Qualitative" suitability.
Approval of new accounts for MSRB member firms can be performed by the:
I Branch Office Manager
II Municipal Securities Principal
III General Securities Principal
IV Financial and Operations
Principal
A. I and II only
B. III and IV only
C. I, II, III
D. I, II, III, IV
The best answer is C.
The Municipal Principal (Series 53 license) approves accounts at municipal securities firms. In addition, the MSRB permits the General Principal (Series 24 license) or the Branch Office Manager (Series 9/10 license) to approve new accounts. The Financial and Operations Principal (Series 27 license) is the firm's accountant, and cannot approve the opening of customer accounts.
If a customer wishes to open an account for a minor without additional documentation, the account must be opened as a:
A. guardian account
B. cash account
C. margin account
D. conservator account
The best answer is B.
The "default" setting of the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act is that custodian accounts can only be opened as cash accounts. They can be opened as margin accounts only if the State permits it in its version of the law (which some States do, most do not). For the exam, custodian accounts can only be opened as cash accounts, since this is the rule in most States.
No additional documentation is needed for the adult to open the account, as compared to, say opening a trust account, which requires a copy of the trust document.
If a tenant
in a joint account dies, the decedent's share is excluded from the taxable estate for accounts held as:
A. Joint Tenants with Rights of Survivorship only
B. Tenants in Common only
C. both Joint Tenants with Rights of Survivorship and Tenants in Common
D. neither Joint Tenants with Rights of Survivorship and Tenants in Common
The best answer is D.
If a joint account owned as "Tenancy In Common," then if one person dies, that person's share goes into his estate, and is subject to estate tax. Even though a "Joint Tenancy with Rights of Survivorship" gives each owner a legally undivided interest in an account, if one owner dies, the IRS assigns a portion of the account to that person and taxes it (nothing is so certain in life as death and taxes!) If the owners are married, then the unlimited marital exclusion stops the tax bill from hitting until the second spouse dies.
Which of
the following statements are TRUE regarding a custodian account?
I Tax liability is the responsibility of the minor
II Tax liability is the responsibility of the custodian
III The minor's social security number is on the account
IV The custodian's social security number is on the account
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is A.
Tax liability in a custodian account is the responsibility of the minor - it is the minor's social security number that is on the account. Thus, all income is reported to the IRS on the minor's number.
Stock held in the custodian account is the subject of a rights offering. Which of the following actions by the custodian are appropriate?
I Selling the rights and reinvesting the proceeds
II Donating the funds required to exercise the rights
III Selling another security in the account and using the
proceeds to exercise the rights
IV Letting the rights expire unexercised
A. I and III
B. II and IV
C. I, II, III
D. I, II, III, IV
The best answer is C.
The custodian can sell the rights or exercise the rights. The custodian cannot let the rights expire unexercised, since this is the same as "throwing away" money and is not in the best interest of the account.
A customer gives her
registered representative instructions to buy 100 shares of XYZ stock during the trading day, if it looks attractive. As of the end of the day, the trade is not executed and the customer wants to extend the instructions through the end of the week. Which statement is TRUE?
A. The registered representative can accept the verbal instructions because only price and time decisions are left to the representative
B. The registered representative can accept the verbal instructions only if the
principal approves
C. The registered representative can do this only if the customer gives written instructions
D. The registered representative may not accept the customer's instructions under any circumstances
The best answer is C.
Verbal discretion over price and time of execution is only permitted for retail clients if the trade is executed that day. To take price and time discretion from a retail client covering a longer time frame requires written authorization (a power of attorney) from the customer.
Customer account records to be kept by a registered representative under FINRA rules are:
I a record by customer name or account number of each security position
II a record of the aggregate position maintained among all customers in each security
III copies of customer order tickets - both open and executed
IV records of dividends and interest received on street name
securities
A. I and II only
B. III and IV
C. I, II, III
D. I, II, III, IV
The best answer is A.
FINRA rules require that a registered representative keep records of all positions within a customer's account (that makes sense) and a record by company of all customer positions in that security (that way, you know how many shares of the company's stock are held in all your customer accounts). There is no requirement for a registered representative to maintain copies of order tickets or dividends received - these records are maintained by the brokerage firm.
If an execution report shows that an erroneous execution has occurred, the responsibility for the trade rests with the:
A. customer
B. registered representative
C. brokerage firm executing the transaction
D. stock exchange on which the trade occurred
The best answer is C.
If an erroneous execution occurs, it is the responsibility of the firm to correct the error.
A registered representative solicits an order from a customer to buy 200 shares of XYZZ at $50. The customer agrees and the registered representative completes the order ticket and enters the order for execution. Once the member firm processes the order, the order ticket record must contain which of the following information?
I Time of order
receipt
II Time of order entry
III Time of order execution
IV Time of order confirmation
A. I and IV only
B. II and III only
C. I, II, III
D. I, II, III, IV
The best answer is C.
The required time stamps on an order ticket are time of order receipt; order entry; and order execution. There is no requirement for the time of order confirmation to be on the order ticket.
Regulation
T controls credit on securities from:
A. broker to broker
B. broker to customer
C. bank to broker
D. bank to customer
The best answer is B.
Regulation T of the Federal Reserve Board controls the extension of credit on securities from broker to customer. Regulation U of the Federal Reserve Board controls the extension of credit on securities by banks.
A customer sells short 100 shares of
ABC stock at $25 as an initial transaction in a new margin account. The customer must deposit:
A. $625
B. $1,250
C. $2,000
D. $2,500
The best answer is C.
Regulation T initial margin to sell short stock is 50% of $2,500 = $1,250. However, since this is a new account, it must meet the minimum initial margin of $2,000 needed to open an account. Therefore, $2,000 must be deposited.
Which of
the following annuity payment options will pay the estate of the annuitant if the full value of the account was not received?
A. Life Annuity
B. Life Annuity with Period Certain
C. Joint and Last Survivor Annuity
D. Unit Refund Annuity
The best answer is D.
If the holder of a unit refund annuity dies before receiving the full investment value from the separate account, his or her estate gets a "refund" of the remaining value.
Which statement is TRUE about the taxation of dividends, interest and capital gains in the separate account during the accumulation phase?
A. All dividends, interest and capital gains are taxable in the year received
B. Dividends and interest are taxable in the year received; capital gains are tax deferred
C. Dividends and interest are tax deferred; capital gains are taxable in the year received
D. All dividends, interest and capital gains
are tax deferred
The best answer is D.
During the accumulation phase of a variable annuity contract, all dividends, interest and capital gains earned from the securities in the separate account must be reinvested and build tax deferred. The tax deferral of the build-up is the major benefit of buying a variable annuity.
403(b) Plans are permitted to invest in which of the following?
I Common stocks
II
Mutual Funds
III Fixed Annuities
IV Variable Annuities
A. I only
B. I and II only
C. III and IV only
D. II, III, IV
The best answer is D.
403(b) plans are tax deferred annuity contracts available to non-profit employees who are not covered by qualified retirement plans. Such plans allow for a tax deductible contribution of 25% of income, up to $19,000 for 2019. The plans allow for investment in tax deferred annuity contracts, that can be funded by mutual fund purchases, as well as by traditional fixed annuities. Direct investments in common stocks are not allowed; the investments must be managed by a professional manager.
All of the following are true statements about Individual Retirement Accounts EXCEPT:
A. the earliest a taxpayer may make an annual contribution is January 1st of that tax year
B. the latest a taxpayer may make an annual contribution is April
15th of the following tax year
C. if the taxpayer obtained a 4 month filing extension, he can make the annual contribution up to the extension date
D. annual contributions may be made even if the person is covered by another qualified retirement plan
The best answer is C.
Annual IRA contributions can be made anytime from January 1st of that year until April 15th of the next tax year. If the taxpayer requests an extension for filing his tax return, he does not get an extension for making the IRA contribution. IRA contributions can be made even if the employee is covered by another qualified pension plan, but may not be tax deductible in that case.
Which of the following statements are TRUE regarding contributions to, and distributions from, non-tax qualified retirement plans?
I Contributions are made with before tax dollars
II Contributions are made with after tax dollars
III
Distributions are 100% taxable
IV Distributions are partially tax free, with the amount above the original cost basis being taxed
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is D.
Contributions to non-tax qualified plans are not tax deductible. They are made with "after-tax" dollars. Earnings accrue tax deferred. When distributions commence, the return of original capital contributions made with after-tax dollars is not taxed. Only the tax deferred "build-up" in the account above what was originally contributed is taxed.
Which statement is FALSE about 401(k) plans?
A. The plan is established by the corporate employer
B. The corporate employer can make matching contributions into the plan based on the contribution made by the employee
C. All corporate employees must participate in the plan
D. All contributions into the plan are
made with pre-tax dollars
The best answer is C.
401(k) plans are corporate-sponsored salary reduction plans allow employees to contribute up to $19,000 in 2019 as a salary reduction, so these are pre-tax dollars going into the plan. The account grows tax-deferred and all distributions at retirement age are 100% taxable.
Participation in the plan is voluntary, and employers can make matching contributions for employees that contribute.
Which statement is TRUE about Roth IRAs?
A. Contributions are tax deductible; distributions after age 59 1/2 are not taxed
B. Contributions are not tax deductible; distributions after age 59 1/2 are not taxed
C. Contributions are tax deductible; distributions after age 59 1/2 are taxed
D. Contributions are not tax deductible; distributions after age 59 1/2 are taxed
The best answer is B.
Roth IRAs, unlike Traditional IRAs, do not permit a tax deduction for the amount contributed. On the other hand, when distributions are taken, unlike a Traditional IRA, the distributions are not taxable (given that the investment has been held for at least 5 years).
Monies that have accumulated in a Coverdell Education Savings Account that are not used by the beneficiary to pay for qualified educational expenses:
A. may be rolled over into a
Traditional IRA without any tax liability
B. may be rolled over into a Roth IRA without any tax liability
C. may be transferred to a Coverdell Education Savings Account for a sibling that so qualifies without any tax liability
D. are tax-deferred until a Traditional IRA is established by the beneficiary
The best answer is C.
Coverdell Education Savings Account permit a maximum annual non-deductible contribution of $2,000 to pay for qualified education expenses. Contributions must cease at age 18. The monies in the account must be used by age 30. Any unexpended funds in the account can be transferred to another family member for their qualified education expenses (like a younger brother or sister). If the funds are not used by age 30, or transferred to a sibling that so qualified, then they become taxable (the taxable amount is the "build-up" in the account - the amount above the original non-tax deductible contribution).
When recommending a 529 plan to a client, the registered representative should inform the customer about the:
A. income-phase outs that restrict who can contribute funds to the account
B. right of the beneficiary to take control of the assets in the account at the age of majority
C. fact that the contribution might be deductible at the state level
D. fact that the beneficiary of the account can only be a minor
The best answer is C.
529 plans are state-sponsored college savings plans. Any dollar limit on 529 plan contributions is set by the state and the contribution may be deductible from state income tax (but not from federal income tax). This is the point that must be disclosed of the choices offered.
There are no income phase outs on who can contribute to a 529 plan; the donor retains control of the assets at all times; and an account can be opened for an adult who wants to save for higher education (and the donor and beneficiary can be the same person, so you can open a 529 plan for yourself!).
Under which TWO of the following circumstances can a non-taxable distribution be made from a Section 529 Plan?
I The beneficiary does not go to college
II The beneficiary gets a full scholarship
III The beneficiary goes to vocational school
IV The beneficiary gets married
A. I and III
B. I and IV
C. II and III
D. II and IV
The best answer is C.
Payments from Section 529 plans made to colleges, universities, vocational schools, and any other accredited post secondary education institution are not taxable. Starting in 2018, up to $10,000 per year can be withdrawn to pay for education below the college level. In addition, refunds made because of death or disability of the beneficiary, or because the beneficiary received a scholarship, are not taxable. Distributions made for any other reason are taxable.
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Verified questions
finance
Give the four components of a manufacturing statement and provide specific examples of each for <span style=color:#bf337f>**Apple**</center>.
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economics
Consider the sample regression $$ Y_i=\hat{\beta}_1+\hat{\beta}_2 X_i+\hat{u}_i $$ Imposing the restrictions (i) $\sum \hat{u}_i=0$ and (ii) $\sum \hat{u}_i X_i=0$, obtain the estimators $\hat{\beta}_1$ and $\hat{\beta}_2$ and show that they are identical with the least-squares estimators given in Eqs. (3.1.6) and (3.1.7). This method of obtaining estimators is called the analogy principle. Give an intuitive justification for imposing restrictions (i) and (ii). (Hint: Recall the CLRM assumptions about $u_i$.) In passing, note that the analogy principle of estimating unknown parameters is also known as the method of moments in which sample moments (e.g., sample mean) are used to estimate population moments (e.g., the population mean). As noted in Appendix A, a moment is a summary statistic of a probability distribution, such as the expected value and variance.
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finance
The CPA firm of Simon, Winslow, and Tate has been approached by a client who is interested in information about the possibility of establishing a minor’s Section 2503(c) trust.  Go to the website www.finaid.org/savings/2503ctrust.phtml. Alternatively, use an Internet search engine to find other analyses of a Section 2503(c) trust. **Required** Based on the results of this search, prepare a memo for the client outlining the requirements, design, advantages, and disadvantages of a minor’s Section 2503(c) trust so the client can make an informed decision.
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algebra
Find the percentage. 7% of 252,000
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