Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

In the Pension Model,the initial investment is deductible or excludible from gross income,and investment earnings are taxed currently.

Accepted Answer

A) True 
 B)False

Question 3

While tax-exempt bonds are not subject to income tax under the Internal Revenue Code,they are subject to implicit taxes caused by increased demand driving up the price.

Accepted Answer

A) True 
 B)False

Question 4

Discuss the decision rules for current salary versus deferred compensation.

Accepted Answer

1.If the employee's indifference level o

Question 5

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 6

The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Earl invests $7,000 in a tax-exempt bond yielding 4% which matures in 15 years.What is Earl's after-tax accumulation at maturity?

Accepted Answer

$7,000 (1

Question 9

Taxpayers often have to decide between contributing to a traditional nondeductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 10

What are the characteristics of the Pension Model?

Accepted Answer

Before-tax dollars are invested in the P

Question 11

Given that Dn is the amount of deferred compensation received in lieu of $1 currently,then if the employee's indifference level of Dn exceeds the employer's indifference level of Dn,the employee must accept current salary because the employer will not pay the employee's required deferred compensation.

Accepted Answer

A) True 
 B)False

Question 12

The Current Model provides the future value of an investment having which of the following characteristics?

Accepted Answer

A)  only after-tax dollars are invested 
B)  only before-tax dollars are invested 
C)  the earnings on the investment are taxed at the end of the investment period 
D)  investment earnings are exempt from taxation 
A)  only after-tax dollars are invested 
B)  only before-tax dollars are invested 
C)  the earnings on the investment are taxed at the end of the investment period 
D)  investment earnings are exempt from taxation

Question 13

If t0 is the tax rate in Year 0,tn is the tax rate in Year n,and ATA is after-tax accumulation,then which one of the following does not hold true?

Accepted Answer

A)  if t0 = tn, ATA per Exempt Model = ATA per Pension Model 
B)  if t0 > tn, ATA per Exempt Model 0 n, ATA per Exempt Model > ATA per Pension Model 
D)  if t0 > tn, ATA per Exempt Model > ATA per Pension Model 
A)  if t0 = tn, ATA per Exempt Model = ATA per Pension Model 
B)  if t0 > tn, ATA per Exempt Model 0 n, ATA per Exempt Model > ATA per Pension Model 
D)  if t0 > tn, ATA per Exempt Model > ATA per Pension Model

Question 14

In a progressive tax system,an investor can benefit from tax-exempt bonds when

Accepted Answer

A)  the investor's marginal tax rate is equal to that of the marginal investor. 
B)  the investor's marginal tax rate exceeds that of the marginal investor. 
C)  the investor's marginal tax rate is less than that of the marginal investor. 
D)  None of the above. 
A)  the investor's marginal tax rate is equal to that of the marginal investor. 
B)  the investor's marginal tax rate exceeds that of the marginal investor. 
C)  the investor's marginal tax rate is less than that of the marginal investor. 
D)  None of the above.

Question 15

The Deferred Model has all of the following characteristics except for

Accepted Answer

A)  only after-tax dollars are invested. 
B)  the earnings on the investment are not taxed annually. 
C)  the accumulated earnings are taxed at the end of the investment horizon. 
D)  the Deferred Model will not outperform the Current Model given equal BTRORs and constant tax rates. 
A)  only after-tax dollars are invested. 
B)  the earnings on the investment are not taxed annually. 
C)  the accumulated earnings are taxed at the end of the investment horizon. 
D)  the Deferred Model will not outperform the Current Model given equal BTRORs and constant tax rates.

Question 16

Nontax issues to consider when evaluating current salary versus deferred compensation include

Accepted Answer

A)  the employee may need the cash now. 
B)  deferred compensation carries some risk. 
C)  deferred compensation may, depending on the contract, lock the employee into continued employment. 
D)  All of the above are issues to be considered. 
A)  the employee may need the cash now. 
B)  deferred compensation carries some risk. 
C)  deferred compensation may, depending on the contract, lock the employee into continued employment. 
D)  All of the above are issues to be considered.

Question 17

Elise contributes $1,000 to a deductible IRA.Her investment will earn 10% annually before taxes,and she will withdraw the accumulated amounts from the IRA after 20 years.She expects her tax rate to be 25% at that time and will not be subject to the 10% on early distributions.What is Elise's after-tax accumulation in the IRA?

Accepted Answer

The answer of Elise contributes $1,000 to a deductible IRA.Her...

Question 18

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 19

Judy is considering receiving either $20,000 of current salary or $40,000 of deferred compensation in 12 years.Her current tax rate is 33%,but she expects her tax rate to be 15% 12 years from now.Judy can invest any after-tax current salary at a 6% ATROR.If she receives the deferred compensation,her investment will accumulate to

Accepted Answer

A)  $26,800. 
B)  $34,000. 
C)  $36,000. 
D)  $40,000. 
A)  $26,800. 
B)  $34,000. 
C)  $36,000. 
D)  $40,000.

Question 20

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

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

In the Pension Model,the initial investment is deductible or excludible from gross income,and investment earnings are taxed currently.

While tax-exempt bonds are not subject to income tax under the Internal Revenue Code,they are subject to implicit taxes caused by increased demand driving up the price.

Discuss the decision rules for current salary versus deferred compensation.

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

The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.

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

Earl invests $7,000 in a tax-exempt bond yielding 4% which matures in 15 years.What is Earl's after-tax accumulation at maturity?

Taxpayers often have to decide between contributing to a traditional nondeductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

What are the characteristics of the Pension Model?

The Current Model provides the future value of an investment having which of the following characteristics?

If t₀ is the tax rate in Year 0,t_n is the tax rate in Year n,and ATA is after-tax accumulation,then which one of the following does not hold true?

In a progressive tax system,an investor can benefit from tax-exempt bonds when

The Deferred Model has all of the following characteristics except for

Nontax issues to consider when evaluating current salary versus deferred compensation include

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.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

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

Exam 18: Taxes and Investment Planning

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

In the Pension Model,the initial investment is deductible or excludible from gross income,and investment earnings are taxed currently.

While tax-exempt bonds are not subject to income tax under the Internal Revenue Code,they are subject to implicit taxes caused by increased demand driving up the price.

Discuss the decision rules for current salary versus deferred compensation.

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

The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.

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

Earl invests $7,000 in a tax-exempt bond yielding 4% which matures in 15 years.What is Earl's after-tax accumulation at maturity?

Taxpayers often have to decide between contributing to a traditional nondeductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

What are the characteristics of the Pension Model?

The Current Model provides the future value of an investment having which of the following characteristics?

If t0 is the tax rate in Year 0,tn is the tax rate in Year n,and ATA is after-tax accumulation,then which one of the following does not hold true?

In a progressive tax system,an investor can benefit from tax-exempt bonds when

The Deferred Model has all of the following characteristics except for

Nontax issues to consider when evaluating current salary versus deferred compensation include

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.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

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

If t₀ is the tax rate in Year 0,t_n is the tax rate in Year n,and ATA is after-tax accumulation,then which one of the following does not hold true?