Question 1

Which of the following characteristics belong(s)to the Exempt Model?

Accepted Answer

A) Only after-tax dollars are invested. 
B) Only tax-free dollars are invested. 
C) Earnings on the investment are exempt from explicit taxation. 
D) both A and C 
A) Only after-tax dollars are invested. 
B) Only tax-free dollars are invested. 
C) Earnings on the investment are exempt from explicit taxation. 
D) both A and C

Question 2

If a fully-taxable bond yields a BTROR of 10% (Rb = 10%)and a tax-exempt bond of similar risk earns a BTROR of 7.5% (Rf = 7.5%),then the implicit tax rate is

Accepted Answer

A) 25%. 
B) 75%. 
C) 10%. 
D) none of the above. 
A) 25%. 
B) 75%. 
C) 10%. 
D) none of the above.

Question 3

When given a choice between making a contribution to a Roth IRA or to a nondeductible traditional IRA,the taxpayer should choose the Roth IRA.

Accepted Answer

A) True 
 B)False

Question 4

Jan can invest $4,000 of after-tax dollars (AT$)directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case,the bond yields an annual 4% before-tax rate of return (BTROR).Jan's marginal tax rate is 15%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR)for the "bond inside the IRA"?

Accepted Answer

A) 3)6% 
B) 4)5% 
C) 4% 
D) None of the above 
A) 3)6% 
B) 4)5% 
C) 4% 
D) None of the above

Question 5

In evaluating whether to convert a current traditional IRA to a Roth IRA,a taxpayer will utilize the Deferred and Exempt Models.

Accepted Answer

A) True 
 B)False

Question 6

The source of funds used to pay the taxes upon conversion of a traditional IRA to a Roth IRA can influence the decision.Use of funds from the IRA to pay the conversion tax is likely to bias the decision towards converting.

Accepted Answer

A) True 
 B)False

Question 7

At the beginning of year 1,Sandeep invests $10,000 in a money market fund that pays a 3% annual return before taxes.Sandeep's marginal tax rate is 25%,and he allows the after-tax earnings to remain in the money market fund.That is,he withdraws only enough cash to pay the taxes on the earnings.What is his after-tax accumulation at the end of year 2?

Accepted Answer

A) $10,455 
B) $10,609 
C) $10,690 
D) None of the above 
A) $10,455 
B) $10,609 
C) $10,690 
D) None of the above

Question 8

Pass-through entities include all of the following types of entities except

Accepted Answer

A) partnerships. 
B) C corporations. 
C) S corporations. 
D) limited liability companies (LLCs). 
A) partnerships. 
B) C corporations. 
C) S corporations. 
D) limited liability companies (LLCs).

Question 9

One characteristic of the Pension Model is the fact that,like the Current and Deferred Models,only after-tax dollars are invested.

Accepted Answer

A) True 
 B)False

Question 10

The Pension Model has all of the following characteristics except for

Accepted Answer

A) before-tax dollars are invested. 
B) the annual earnings on the investment grow at the before-tax rate of return. 
C) only the accumulated earnings are taxed at the end of the investment horizon when the investor cashes out of the investment. 
D) the entire accumulation is taxed at the end of the investment horizon when the investor cashes out of the investment. 
A) before-tax dollars are invested. 
B) the annual earnings on the investment grow at the before-tax rate of return. 
C) only the accumulated earnings are taxed at the end of the investment horizon when the investor cashes out of the investment. 
D) the entire accumulation is taxed at the end of the investment horizon when the investor cashes out of the investment.

Question 11

A taxpayer has a traditional IRA and is considering converting it to a Roth.Which of the following factors does not bias the decision towards the Roth conversion?

Accepted Answer

A) A high tax rate expected for the future withdrawal year compared to the tax rate in the conversion year. 
B) The ability to use funds outside the IRA to pay the conversion tax. 
C) A high ratio of IRA basis to IRA value. 
D) All of the above factors favor the Roth conversion. 
A) A high tax rate expected for the future withdrawal year compared to the tax rate in the conversion year. 
B) The ability to use funds outside the IRA to pay the conversion tax. 
C) A high ratio of IRA basis to IRA value. 
D) All of the above factors favor the Roth conversion.

Question 12

The difference between the BTRORs of fully-taxable and tax-favored investments is called

Accepted Answer

A) an explicit tax. 
B) an implicit tax. 
C) an effective tax. 
D) a marginal tax. 
A) an explicit tax. 
B) an implicit tax. 
C) an effective tax. 
D) a marginal tax.

Question 13

Kate can invest $4,000 of after-tax dollars (AT$)directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case,the bond yields an annual 3% before-tax rate of return (BTROR).Kate's marginal tax rate is 15%,and she expects it to remain so for the entire investment horizon of 25 years.What is the after-tax accumulation for the "bond outside the IRA" after 25 years (assume that bond interest is reinvested at the same rate)?

Accepted Answer

A) $5,585 
B) $7,507 
C) $8,375 
D) None of the above 
A) $5,585 
B) $7,507 
C) $8,375 
D) None of the above

Question 14

Sylvia makes a one-time $2,000 deductible contribution into a deductible traditional IRA account,which will earn 8% annually before taxes.Twenty-five years later,at age 65,she withdraws all of the accumulation from the IRA when she is in the 15% marginal tax bracket.What is the total of her after-tax accumulated proceeds from the IRA?

Accepted Answer

A) $6,000 
B) $8,541 
C) $11,642 
D) $13,697 
A) $6,000 
B) $8,541 
C) $11,642 
D) $13,697

Question 15

In weighing whether to convert a traditional IRA to a Roth IRA,the expectation of lower tax rates at retirement is likely to bias the decision towards retaining the traditional IRA.

Accepted Answer

A) True 
 B)False

Question 16

The Roth IRA is an example of the Pension Model.

Accepted Answer

A) True 
 B)False

Question 17

As long as the rollover from a traditional IRA to a Roth IRA is completed within 60 days,no tax is due.

Accepted Answer

A) True 
 B)False

Question 18

Miles invests $20,000 in a taxable bond for 5 years that earns 5% interest per year.His marginal tax rate is 15%.What is his after-tax accumulated investment at the end of year 1?

Accepted Answer

A) $20,850 
B) $21,000 
C) $21,700 
D) $22,000 
A) $20,850 
B) $21,000 
C) $21,700 
D) $22,000

Question 19

Will invests $20,000 of after-tax dollars (AT$)in tax-exempt municipal bonds which yield 5% per year.He reinvests the interest in the same bonds and holds the bonds for two years.Will's marginal tax rate is 25%.What is his after-tax accumulation at the end of two years?

Accepted Answer

A) $21,000 
B) $21,528 
C) $22,000 
D) $22,050 
A) $21,000 
B) $21,528 
C) $22,000 
D) $22,050

Question 20

An investment in a growth stock which does not pay dividends is an example of the Exempt Model.

Accepted Answer

A) True 
 B)False

Exam 34: Taxes and Investment Planning

Which of the following characteristics belong(s)to the Exempt Model?

If a fully-taxable bond yields a BTROR of 10% (Rb = 10%)and a tax-exempt bond of similar risk earns a BTROR of 7.5% (Rf = 7.5%),then the implicit tax rate is

When given a choice between making a contribution to a Roth IRA or to a nondeductible traditional IRA,the taxpayer should choose the Roth IRA.

In evaluating whether to convert a current traditional IRA to a Roth IRA,a taxpayer will utilize the Deferred and Exempt Models.

The source of funds used to pay the taxes upon conversion of a traditional IRA to a Roth IRA can influence the decision.Use of funds from the IRA to pay the conversion tax is likely to bias the decision towards converting.

Pass-through entities include all of the following types of entities except

One characteristic of the Pension Model is the fact that,like the Current and Deferred Models,only after-tax dollars are invested.

The Pension Model has all of the following characteristics except for

A taxpayer has a traditional IRA and is considering converting it to a Roth.Which of the following factors does not bias the decision towards the Roth conversion?

The difference between the BTRORs of fully-taxable and tax-favored investments is called

In weighing whether to convert a traditional IRA to a Roth IRA,the expectation of lower tax rates at retirement is likely to bias the decision towards retaining the traditional IRA.

The Roth IRA is an example of the Pension Model.

As long as the rollover from a traditional IRA to a Roth IRA is completed within 60 days,no tax is due.

Miles invests $20,000 in a taxable bond for 5 years that earns 5% interest per year.His marginal tax rate is 15%.What is his after-tax accumulated investment at the end of year 1?

Will invests $20,000 of after-tax dollars (AT$)in tax-exempt municipal bonds which yield 5% per year.He reinvests the interest in the same bonds and holds the bonds for two years.Will's marginal tax rate is 25%.What is his after-tax accumulation at the end of two years?

An investment in a growth stock which does not pay dividends is an example of the Exempt Model.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Filters

If a fully-taxable bond yields a BTROR of 10% (R_b = 10%)and a tax-exempt bond of similar risk earns a BTROR of 7.5% (R_f = 7.5%),then the implicit tax rate is