Which of the following statements regarding a Coverdell Education Savings Plan (ESA) are true?I). There are income limitations regarding those who may contribute to an ESA.II). There is a maximum annual aggregate amount that can be contributed to a single beneficiary's account.III). Contributions to an ESA are tax deductible.IV). The monies must be used prior to the beneficiary's 30th birthday for education-related expenses in order to avoid paying both taxes and a penalty.
Answer(s): C
Only Statements I, II, and IV regarding an ESA are true. The ability to establish one is limited to those with an adjusted gross income specified by government guidelines, and there is a maximum annual aggregate amount that can be contributed to a single beneficiary's account regardless of how many contributors there are to that account. If the monies are not used for education-related expenses prior to the beneficiary's 30th birthday, there is a mandatory distribution requirement, at which point the distribution will be taxed as ordinary income and a 10% penalty will be assessed.
Which of the following steps in the underwriting process will occur last?
The public offering price is set at the latest possible minute. The underwriters want to have the most current information available when setting the price, especially since they will experience the loss if the securities fail to sell for at least that price.
Glamourless Fund is a value fund. As such, it invests primarily in stocks with:
Answer(s): D
As a value fund, Glamourless invests primarily in stocks with low earnings growth rates. Because these firms don't need as much money to support a high growth rate, they tend to have high dividend yields. Their betas are generally less than 1.0, the average stock beta. Value stocks are generally out of favor, which results in low price-earnings ratios since investors aren't clamoring to buy them.
Clem Shyster is a registered representative with a family of mutual funds. A married couple in their 50s sought his advice about how they should best invest an $80,000 profit that they had received when they sold a rental property they owned for a number of years. Their investment profile indicated to Clem that their main investment objective was capital appreciation and that they were willing to accept moderate levels of risk. Clem advised them to invest $10,000 in eight different growth funds, each of which had a 7% front-end load.Has Clem violated any securities laws with his recommendation?
Yes, Clem has violated securities laws with his recommendation that his clients spread their money among eight different load, growth funds because there is a lot of overlap in the individual stocks in which these funds invest, so this strategy has not provided them with significantly more diversification; it has just cost them more, which will benefit Clem since he gets to pocket part of that load fee himself. He has made an unsuitable recommendation and has not upheld NASD's rules involving fair dealing with customers.
Sam's neighbor has just inherited some bonds from his uncle. The neighbor, knowing that Sam is a registered representative with a brokerage firm, asks Sam if he would like to handle the sale of these securities. Sam agrees to do so and calls his existing clients with an offer to sell the bonds at a price that he researches to be the average "ask" price of dealers in the same bonds. In this situation:
Answer(s): B
If Sam sells his neighbor's bonds by calling his existing clients with an offer to sell them the bond, he has engaged in the illegal practice of "selling away." This practice is defined as a broker or agent offering securities for sale that are not owned or offered by his member firm and is in violation of NASD Rule 3040.
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