Reading 17: Excerpts from Invest....ivate Investors－LOS g investment, Investment, management, class

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 4: Private Wealth Management
Reading 17: Excerpts from Investment Management for Taxable Private Investors
LOS g: Evaluate the effectiveness of various investment strategies, including tax-lot management, extended holding periods, tax-loss harvesting, minimizing turnover, and reduced portfolio rebalancing, as techniques for improving the after-tax results of taxable portfolios.

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The two main tax-related goals for improving after-tax returns are:

A) minimize the amount of the tax payment, and defer the timing of the tax payment.

B) minimize income received, and defer the timing of the tax payment.

C) conversion of income, and defer the timing of the tax payment.

D) minimize the amount of the tax payment, and minimize the tax deferral period.

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Answer and Explanation

The two main goals for improving after-tax returns are to minimize the amount of the tax payment, and defer the timing of the tax payment.

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Emmanuel Qi purchased 100 shares of QRS on September 23^rd. It is now September 16^th of the following year, and he is planning to sell the shares to harvest a capital gain. You have advised him to wait until September 24^th to sell. This is an example of:

A) minimizing the amount of the tax payment.

B) both minimizing the amount and deferring the timing of the tax payment.

C) deferring the timing of the tax payment.

D) neither minimizing the amount or the timing of the tax payment.

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Answer and Explanation

This is an example of minimizing the amount of the tax payment. He will still need to make the appropriate adjustment to his next estimated tax payment, so there is no deferral benefit.

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An individual, aged 40, is currently in the 25 percent marginal tax bracket, and expects to be in the 15 percent 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) deferring the timing of the tax payment.

C) neither minimizing the amount or the timing of the tax payment.

D) minimizing the amount of the tax payment.

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Answer and Explanation

The investors action is an example of both minimizing and deferring. He will minimize taxes by converting income that would have been taxed at a 25 percent rate today to a lower 15 percent rate in the future. He will defer taxes payable until the funds are withdrawn from the account in the future.
  

[此贴子已经被作者于2008-9-17 12:39:48编辑过]

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An investor purchased 100 shares of VBN at $34 two years ago and another 100 shares at $46 one year ago. Today, the price is $73, and they are going to sell 100 shares. Which of the following statements is correct? They should sell the shares purchased:

A) two years ago because this will minimize the capital gains taxes.

B) one year ago because this will minimize the capital gains taxes.

C) one year ago because this will maximize the capital gain.

D) two years ago because this will maximize the capital gain.

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Answer and Explanation

They should sell the shares purchased one year ago because this will minimize the capital gain and thereby minimize the taxes payable.

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All else being equal, an investment fund that has a high level of portfolio turnover will accrue:

A) more tax liabilities, and have a larger tax deferral benefit.

B) less tax liabilities, and have a smaller tax deferral benefit.

C) less tax liabilities, and have a larger tax deferral benefit.

D) more tax liabilities, and have a smaller tax deferral benefit.

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Answer and Explanation

All else being equal, an investment fund that has a high level of portfolio turnover will accrue more tax liabilities, and have a smaller tax deferral benefit.

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A tax lot refers to:

A) securities that are identified, usually by purchase date and price, to minimize taxes.

B) holding securities that have market values below the cost basis.

C) a means of identifying real property for tax purposes.

D) all shares that are sold on a given date.

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Answer and Explanation

A tax lot refers to securities that are identified, usually by purchase date and price, to minimize capital gains taxes that will be payable on the transaction. Shares sold on a given date may represent more than one tax lot.

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接着上一帖的题

Are Johnsons statements concerning superannuation correct?

Identifying the party most at risk

Indentifying the solution to it

A) Correct Incorrect

B) Incorrect Correct

C) Incorrect Incorrect

D) Correct Correct

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Answer and Explanation

Superannuation refers to when an individual outlives their wealth. Given Daviss financial situation, she is at the most risk for it. The most effective method of controlling for it would be to recommend a life annuity for Davis when she retires. A life annuity is essentially a life insurance policy in reverse. The investor pays a lump sum and receives a series of payments over his or her lifespan. The investor cannot outlive the annuity unless the insurance company fails and is unable to make the promised payments.

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Is Weinkes statement concerning the tax efficiency of hedge funds and Johnsons statement concerning the tax efficiency of private equity investments correct?

Weinke

Johnson

A) Incorrect Incorrect

B) Correct Incorrect

C) Incorrect Correct

D) Correct Correct

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Answer and Explanation

Weinke is incorrect because hedge funds are typically tax inefficient. They generate high turnover and take numerous positions using long-short strategies. Johnson is also incorrect because private equity investments are tax efficient. They are typically long term in nature and taxed at lower rates.

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Are Weinkes and Johnsons statements concerning the attractiveness of bonds as investments for wealthy investors correct?

Weinke

Johnson

A) Correct Incorrect

B) Incorrect Incorrect

C) Incorrect Correct

D) Correct Correct

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Answer and Explanation

Weinke is incorrect because there have been long periods of time when the returns for bonds and equities were positively correlated. Thus bonds would not be good diversification vehicles for wealthy investors. Johnson is correct because wealthy investors are in high marginal tax brackets. Because the coupon income from bonds cannot be deferred, bonds are often unattractive investments for wealthy individuals from a tax standpoint.

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Assuming he liquidates a portion of his shares, what shares should Brooks sell of Dumas Environmental?

A) 30,000 of the 1/9/00 shares, 50,000 of the 2/9/02 shares, and 40,000 shares of the 12/8/04 shares.

B) 30,000 of the 1/9/00 shares, 50,000 of the 2/9/02 shares, and 39,000 shares of the 12/8/04 shares.

C) 100,000 of the 1/9/00 shares and 20,000 of the 2/9/02 shares.

D) 100,000 of the 1/9/00 shares and 19,000 of the 2/9/02 shares.

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Answer and Explanation

Brooks will sell the stock at the dealers bid of $25. He would like to generate $3,000,000 so he will need to sell $3,000,000 / $25 = 120,000 shares. To minimize taxes, he should sell the high cost basis stock first. He should sell 30,000 of the 1/9/00 shares, 50,000 of the 2/9/02 shares, and 40,000 shares of the 12/8/04 shares.

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Are Weinkes and Johnsons statements concerning the gifting of Brooks stock to his alma mater correct?

Weinke

Johnson

A) Correct Incorrect

B) Incorrect Correct

C) Correct Correct

D) Incorrect Incorrect

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Answer and Explanation

Weinke is correct. If the stock is gifted, capital gains taxes would be avoided entirely. Johnson is correct. The gift can provide a tax deduction against ordinary income for Brooks.