Question 1

The amount of taxes paid,divided by taxable income,is called:

Accepted Answer

The amount of taxes paid divided by taxable income is the definition of the average tax rate. The marginal tax rate is the tax rate charged on the last dollar of income earned, and the implied tax rate is not a commonly used term in taxation.

Question 2

An investor is in a 35% tax bracket for normal (ordinary)income.During the course of the year,he received $5,000 in dividends and had $15,000 capital gains on stock he had held for 19 months.How much will his total tax be on this investment-related income?

Accepted Answer

The answer of An investor is in a 35% tax...

Question 3

Using the Table below,assume a single person has a taxable income of $40,000. $$\begin{array}{l}
 \underline {\text { Taxable Income }}& \underline { \text { Tax Rate } }\
0-\$ 7,300 & 10 \% \
\$ 7,300-\$ 29,700 & 15 \% \
\$ 29,700-\$ 40,000 & 25 \%
\end{array}$$ (a)How much tax will be owed? (You will need to refer to the Table plus make your own calculations).
(b)What is the person's average tax rate?
(c)What is the person's marginal tax rate?

Accepted Answer

The answer of Using the Table below,assume a single person...

Question 4

A type of index that weighs each company by its total market value as a percentage of the total market value for all firms is:

Accepted Answer

This refers to a value-weighted index, where companies are weighted by their total market value as a percentage of the total market value for all firms. This is also known as a market capitalization-weighted index.

Question 5

When an investor establishes a position in a security,

Accepted Answer

When investors establish a position in a security, they are said to have a long position if they purchase the security for their account. Those who have no position at all, borrow a security from the brokerage firm and sell it for their account.

Question 6

The tax rate that is simply the amount of taxes paid,divided by taxable income is:

Accepted Answer

The tax rate that is simply the amount of taxes paid, divided by taxable income is known as the average tax rate. The marginal tax rate is the rate applied to the last dollar of taxable income, and the short-term and long-term capital gains tax rates apply specifically to investment income.

Question 7

Long-term capital gains treatment serves as encouragement for investors to buy:

Accepted Answer

Long-term capital gains treatment incentivizes investors to hold onto stocks for at least a year before selling, in order to receive a lower tax rate on any gains they realize. This is particularly advantageous for growth stocks, which often require a longer-term investment horizon to fully realize their potential.

Question 8

The tax rate that specifically applies to each new dollar of income is the:

Accepted Answer

The answer is the marginal tax rate. This is because it specifically applies to each new dollar of income earned. The average tax rate is the total amount of taxes paid divided by total income, and the short-term and long-term capital gains tax rates apply to specific types of income, not all income.

Question 9

The Nikkei average relates to stock movements in what market?

Accepted Answer

The Nikkei average (or Nikkei index) is a stock market index for the Tokyo Stock Exchange (TSE), which is located in Japan.

Question 10

The minimum holding period to qualify for the long-term capital gains treatment is:

Accepted Answer

The minimum holding period to qualify for the long-term capital gains treatment is 12 months. This means that if an asset is held for at least 12 months, any gains from its sale will be taxed at a lower rate than if it was held for less than 12 months (which would be considered short-term capital gains).

Question 11

The difference between a cash account and a margin account is:

Accepted Answer

A margin account allows the investor to borrow a percentage of the purchase price from the brokerage firm, while a cash account requires the investor to pay the full amount upfront. The other options listed are either incorrect or irrelevant to the difference between cash and margin accounts.

Question 12

Margin accounts are used by:

Accepted Answer

Margin accounts can be used by all three types of individuals as long they believe that their long-run returns will be greater than the cost of borrowing. Traders, speculators, and investors can use margin accounts to leverage their investments and potentially increase their gains, but they must also be aware of the increased risk involved with borrowing money to invest.

Question 13

You buy 100 shares of stock at $50 per share on margin of 40 percent.If the price of the stock declines to $35,what is your percentage loss?

Accepted Answer

The answer of You buy 100 shares of stock at...

Question 14

You sell 100 shares of PGD short at a price of $50 per share.How much is your initial margin,given margin requirements of 40%? If the stock declines to $30 per share,what is your percentage gain or loss on the initial equity?

Accepted Answer

The answer of You sell 100 shares of PGD short...

Question 15

You buy 100 shares of stock at $40 per share on margin of 40%.If the price of the stock rises to $60 per share,what is your percentage gain in equity? Disregard interest costs.

Accepted Answer

The answer of You buy 100 shares of stock at...

Question 16

Assume the following five companies are used in computing an index (there have been no stock splits during this time). $\begin{array}{ccc} 
&& \text { Base Period } & \text { Current Period } \
&\text { Shares } & \text { January 1, 1977 } & \text { December 31, 2004 } \
\text { Company }&\text { Outstanding } & \text { Market Price } & \text { Market Price }\\hline
\text { A } & 2,000 & \$ 2.00 & \$ 14.00 \
\text { B } & 6,000 & 6.00 & 18.00 \
\text { C } & 5,000 & 9.00 & 23.00 \
\text { D } & 8,000 & 10.00 & 5.00 \
\text { E } & 1,000 & 13.00 & 40.00
\end{array}$ (a)If the index is price-weighted,what will be the value of the index on Dec.31,2004?
(b)Using the same data from the above table,determine the index value if the index is calculated on a value-weighted basis.

Accepted Answer

The answer of Assume the following five companies are used...

Question 17

The following are all value-weighted indexes,except:

Accepted Answer

The Dow Jones Industrial Average is price-weighted, not value-weighted like the other indexes listed.

Question 18

If an investor is in a 34% tax bracket and has held a stock for two years,the applicable tax rate that will apply to dividends is:

Accepted Answer

Since the stock has been held for more than 1 year, it qualifies for the long-term capital gains tax at 15%.

Question 19

An investor who is in a 33% tax bracket for normal (ordinary)income buys a stock for $5,000 and sells it for $9,000.How much will her tax obligation be if she holds the stock for:
(a)6 months?
(b)14 months?

Accepted Answer

The answer of An investor who is in a 33%...

Quiz 3: Participating in the Market