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AAMS Notecards
standard bbdeviation bb- bbANSWER: bb bb➡ bbVariability bbaround bbthe bbmean; bba bbmeasure bbof bbtotal bbrisk;
bbabsolute.
Beta bb- bbANSWER: bb bb➡ bbVolatility bbrelative bbto bba bbbenchmark; bba bbmeasure bbof bbrelative bbrisk; bbnot bbstatic
What bbdid bbthe bbBrinson bbstudy bbevaluate? bb- bbANSWER: bb bb➡ bbSecurity bbselection, bbmarket bbtiming, bband
bbasset bballocation bbpolicy.
What bbconclusion bbdid bbthe bbBrinson bbstudy bbreach? bb- bbANSWER: bb bb➡ bbMore bbattention bbshould bbbe
bbgiven bbto bbthe bbasset bballocation bbprocess bband bbless bbgiven bbto bbsecurities bbselection bband bbmarket
bbtiming.
What's bbthe bbimportance bbof bbasset bballocation bbin bba bbclients bbinvestment bbstrategy? bb- bbANSWER: bb bb➡
bbClients bbmust bbbe bbactive bbin bbdetermining bbtheir bbasset bballocation bband bbexplicit bbabout bbobjectives,
bbrisk, bband bbliquidity bbover bbthe bblong bbterm.
T-Bills bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation, bbsince bb 1926 bb- bbANSWER: bb bb➡
bb3.3%
Long-term bbU.S. bbgovernment bbbonds bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation,
bbsince bb 1926 bb- bbANSWER: bb bb➡ bb5.5%
Long-term bbcorporate bbbonds bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation, bbsince
bb 1926 bb- bbANSWER: bb bb➡ bb5.9%
Intermediate-term bbU.S. bbgovernment bbbonds bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas
bbinflation, bbsince bb 1926 bb- bbANSWER: bb bb➡ bb5.1%
Large-company bbstocks bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation, bbsince bb 1926 bb-
bbANSWER: bb bb➡ bb10%
Small-company bbstocks bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation, bbsince bb 1926 bb-
bbANSWER: bb bb➡ bb11.8%
Inflation bbaverage bb(geometric) bbrate bbof bbreturns, bbas bbwell bbas bbinflation, bbsince bb 1926 bb- bbANSWER: bb bb➡
bb2.9%
Define bbstrategic bbasset bballocation bb- bbANSWER: bb bb➡ bbThe bbidentification bbof bbthe bbasset bbmix bbthat bbwill
bbprovide bbthe bboptimal bbbalance bbbetween bbexpected bbrisk bband bbreturn bbfor bba bblong-term bbinvestment
bbhorizon.
How bbis bbstrategic bbasset bballocation bbmaintained? bb- bbANSWER: bb bb➡ bbWith bbperiodic bbrebalancing bbby
bbrepositioning bbhigher bbperforming bbassets bbinto bblower bbperforming bbassets.
Define bbtactical bbasset bballocation bb- bbANSWER: bb bb➡ bbThis bbis bbthe bbuse bbof bbsecurities bbselection, bbsector
bbrotation, bband bbmarket bbtiming bbto bbperiodically bbrevise bbthe bbasset bbmix bbof bba bbportfolio.
Define bbcore/satellite bbasset bballocation bb- bbANSWER: bb bb➡ bbThis bbapproach bbinvolves bba bbcombination bbof
bbstrategic bband bbtactical bbasset bballocation bbenabled bbby bbdividing bba bbportfolio bbinto bba bbcore bbholding bbof
bbstocks bband bbbonds, bboften bbbroad bbbased, bblow bbcost bbindex bbmutual bbfunds bbor bbetfs, bband bba bbsatellite
bbportion.
What bbare bbthe bbcharacteristics bbof bbcommon bbstock? bb- bbANSWER: bb bb➡ bbShareholders bbreceive
bbdividends bbon bba bbpro bbrata bbbasis, bbvote bbon bbthe bbelection bbof bbcorporate bbboard bbmembers, bbare
bbresidual bbowners bbof bbthe bbfirm bb(meaning bbtheir bbinterests bbare bbsubordinate bbto bbcreditors bband bbbond
bbholders), bband bbthe bbshares bbhave bbno bbmaturity
What bbare bbthe bbsources bbof bbrisk bbfor bbcommon bbstock? bb- bbANSWER: bb bb➡ bbA bbdownturn bbin bbeconomic
bbgrowth, bbhigh bbinterest bbrates, bbloss bbof bbproduct bbor bbservice bbcompetitiveness, bbfailures bbof
bbmanagement, bband bbgovernment bbaction
What bbare bbtreasury bbnotes? bb- bbANSWER: bb bb➡ bbT-notes bbhave bbmaturities bbover bbone bband bbup bbto bbten
bbyears, bbare bbsold bbat bbor bbnear bbface bbvalue, bbpay bbinterest bbsemiannually, bbhave bba bbminimum
bbdenomination bbof bb$100 bbface bbvalue, bband bbare bbsold bbin bbmultiples bbof bb$
What bbare bbtreasury bbbonds? bb- bbANSWER: bb bb➡ bbT-bonds bbhave bbmaturities bbover bb 10 bband bbup bbto bb 30
bbyears, bbare bbsold bbat bbor bbnear bbface bbvalue, bbpay bbinterest bbsemi-annually, bbhave bba bbminimum
bbdenomination bbof bb$100 bband bbare bbsold bbin bbmultiples bbof bb$100 bbface bbvalue
What bbare bbtreasury bbinflation bbprotected bbsecurities bb(TIPS)? bb- bbANSWER: bb bb➡ bbThese bbbonds bboffer bba
bbrate bbof bbreturn bbthat bbincreases bbwith bbinflation bbas bbmeasured bbby bbthe bbconsumer bbprice bbindex bb(CPI).
bbAs bbinflation bbincreases, bbthe bbbonds bbprincipal bbincreases bbat bbthe bbsame bbpercentage bbas bbthe bbincrease
bbin bbthe bbCPI. bbThe bbcoupon bbrate bbstays bbfixed bbbut bbis bbpaid bbon bbthat bblarger bbprincipal. bbThe bbminimum
bbdenomination bbis bb$100 bband bbthey bbare bbsold bbin bbmultiples bbof bb$100 bbface bbvalue.
What bbare bbtreasury bbSTRIPS? bb- bbANSWER: bb bb➡ bbThese bbare bbzero bbcoupon bbinstruments bbsold bbat bbdeep
bbdiscounts bbto bbface bbvalue, bbwith bbthe bbdifference bbbeing bbinterest bbinstead bbof bbperiodic bbinterest
bbpayments.
What bbis bba bbcorporate bbbond bbindenture? bb- bbANSWER: bb bb➡ bbThe bbindenture bbspells bbout bbthe bbterms bbof
bbthe bbissue
What bbis bba bbcorporate bbbond bbtrustee? bb- bbANSWER: bb bb➡ bbThe bbtrustee bbacts bbas bba bbfiduciary bbon bbbehalf
bbof bbbond bbholders bbto bbensure bbthat bbthe bbindenture bbprovisions bbare bbbeing bbmet
What bbis bba bbcorporate bbbonds bbinterest bbtaxation? bb- bbANSWER: bb bb➡ bbInterest bbis bbfully bbtaxed bbat bbboth
bbthe bbfederal bband bbstate bblevels
What bbare bbcorporate bbmortgage bbbonds? bb- bbANSWER: bb bb➡ bbBonds bbthat bbare bbsecured bbby bbproperty,
bbusually bbreal bbestate
What bbare bbcorporate bbbond bbdebentures? bb- bbANSWER: bb bb➡ bbThese bbare bbunsecured bbbonds
What bbare bbcorporate bbbonds bbequipment bbtrust bbcertificates? bb- bbANSWER: bb bb➡ bbBonds bbthat bbare
bbsecured bbby bbspecific bbequipment, bbusually bbairplanes bbor bbrailroad bbcars
List bbcharacteristics bbof bbmortgage bbbacked bbsecurities bb- bbANSWER: bb bb➡ bbMajor bbissuers bbare bbGNMA,
bbFHLMC, bband bbFNMA, bbmake bbmonthly bbpayments, bband bbpayments bbrepresent bbinterest bband bbprincipal
bb(total bbpayments bbcan bbchange bbover bbtime bb- bbdue bbto bbrefinancings)
What bbare bbcorporate bbconvertible bbbonds? bb- bbANSWER: bb bb➡ bbThese bbbonds bbcan bbbe bbconverted bbinto
bbthe bbunderlying bbstock bbat bbthe bboption bbof bbthe bbbond bbholder
List bbthe bbrisks bbfor bbmortgage bbbacked bbsecurities bb- bbANSWER: bb bb➡ bbUncertainty bbof bbcash bbflows,
bbinterest bbrate bbrisk, bbpurchasing bbpower bbrisk, bbreinvestment bbrisk, bband bbFHLMC bband bbFNMA bbhave bba
bbslight bbpotential bbfor bbdefault bbrisk bb(since bbthey're bbnot bbbacked bbby bbthe bbUS bbgovernment)
What bbare bbthe bbcharacteristics bbof bba bbtreasury bbbill? bb- bbANSWER: bb bb➡ bbThese bbhave bbUS bbgovernment
bbobligations bband bbare bbissued bbat bba bbdiscount bbto bbface bbvalue. bbThe bbminimum bbdenomination bbis bb$
bband bbthey bbare bbsold bbin bbmultiples bbof bb$100. bbInterest bbon bbTreasury bbbills bbis bbfree bbfrom bbstate bbincome
bbtaxation bbbut bbtaxable bbat bbthe bbfederal bblevel.
What bbare bbthe bbcharacteristics bbof bbnegotiable bbcertificates bbof bbdeposit? bb- bbANSWER: bb bb➡ bbCDs bbof
bb$100k bbor bbmore, bbpay bba bbfixed bbrate bbof bbinterest bbtaxes bbat bbboth bbthe bbfederal bband bbstate bblevels,
bbquality bbdepends bbon bbthe bbissuing bbbank
What bbare bbthe bbcharacteristics bbof bba bbEurodollar bbcertificate bbof bbdeposit? bb- bbANSWER: bb bb➡ bbUS bbdollar
bbdenominated bbCDs bbissued bbby bbforeign bbbranches bbof bbmajor bbUS bband bbforeign bbbanks, bbnot bbFDIC
bbinsured, bbno bbreserve bbrequirements bbon bbthese bbCDs, bbno bbmaximum bbmaturity bbbut bbusually bbare bbthree
bbto bbsix bbmonths
What bbare bbthe bbcharacteristics bbof bba bbYankee bbcertificate bbof bbdeposit? bb- bbANSWER: bb bb➡ bbUS bbdollar
bbdenominated bbCDs bbissued bbby bbforeign bbbanks bbfrom bbtheir bbUS bbbranches, bbmaturities bbof bbone bbyear bbor
bbless bbpay bbinterest bbat bbmaturity, bbmaturities bblonger bbthan bbone bbyear bbpay bbinterest bbsemiannually bbor
bbannually
What bbare bbthe bbcharacteristics bbof bbcommercial bbpaper? bb- bbANSWER: bb bb➡ bbUnsecured bbIOUs bbof
bbcorporations, bbusually bbsold bbat bba bbdiscount bbwith bbmaturities bbup bbto bb 270 bbdays
Describe bbthe bbdividend bbdiscount bbmodel bbof bbstock bbvaluation bb- bbANSWER: bb bb➡ bbThe bbvalue bbof bba
bbstock bbis bbthe bbpresent bbvalue bbof bbthe bbstream bbof bball bbfuture bbdividends
How bbdoes bbtime bbvalue bbof bbmoney bbconcepts bbapply bbto bbbond bbvaluations? bb- bbANSWER: bb bb➡ bbThe
bbvalue bbof bba bbbond bbis bbthe bbpresent bbvalue bbof bbthe bbstream bbof bbinterest bbpayments bbplus bbthe bbpresent
bbvalue bbof bbthe bbmaturity, bbor bbface, bbvalue.
Which bbfactors bbcan bbaffect bbbond bbvalues? bb- bbANSWER: bb bb➡ bbSize bbof bbcash bbflows, bbtiming bbof bbcash
bbflows, bbinterest bbrate bbchanges, bbchanges bbin bbinflation bbrates, bbcredit bbrisk, bbcurrency bbrisk, bband
bbreinvestment bbrisk
What bbvariables bbare bbtaken bbinto bbaccount bbfor bbeconomic bbanalysis? bb- bbANSWER: bb bb➡ bbBusiness bbcycle,
bbfederal bbreserve bbpolicies, bbnew bbtax bbpolicies, bbunemployment, bbwage bbrates, bbinflation, bbpublic
bbconfidence, bbeconomic bbtrends, bbtrade bbissues bband bbsavings bbrates
What bbvariables bbare bbtaken bbinto bbaccount bbfor bbindustry bbanalysis? bb- bbANSWER: bb bb➡ bbCompetition,
bbtechnology, bbchange, bbaccounting bbconventions, bbcost bbstructure, bbdemand bbfactors, bbbusiness bbcycle,
bbfinancial bbnorms
What bbvariables bbare bbtaken bbinto bbaccount bbfor bbcompany bbanalysis? bb- bbANSWER: bb bb➡ bbEarnings,
bbdividends, bbcost bbof bbcapital, bbcash bbflow, bbproducts, bbfinancials, bbR&D, bbstrategy, bbcompetition,
bbmanagement, bbfinancial bbratios
What bbare bbthe bbcharacteristics bbof bbexpansion bbas bbit bbrelates bbto bbthe bbbusiness bbcycle? bb- bbANSWER: bb bb➡
bbHigh bbinterest bbrates, bbhigh bbcapacity bbutilization, bbincreasing bbwage bbdemands, bband bbinflation
What bbare bbthe bbcharacteristics bbof bba bbrecession bbas bbit bbrelates bbto bbthe bbbusiness bbcycle? bb- bbANSWER: bb
bb➡ bbIncreased bbunemployment, bbfalling bbinterest bbrates, bbslowing bbconsumer bbdemand bband bbpurchases
bbof bbcapital bbequipment, bband bbdecreased bblending
What bbare bbthe bbcharacteristics bbof bba bbrecovery bbas bbit bbrelates bbto bbthe bbbusiness bbcycle? bb- bbANSWER: bb
bb➡ bbLonger bbhours bbworked, bbincreased bbeconomic bboutput, bbreduction bbin bbunemployment, bband
bbincreased bbconsumer bbspending
How bbdoes bbfiscal bbpolicy bbaffect bbthe bbeconomy? bb- bbANSWER: bb bb➡ bbIn bbtimes bbof bbrecession,
bbgovernment bbfiscal bbpolicy bbaims bbto bbstimulate bbthe bbeconomy bbthrough bbtax bbreduction bb(so bbthat
bbconsumers bbhave bbmore bbmoney bbto bbspend) bband bbincreased bbgovernment bbexpenditures, bbwhich bbalso
bbtend bbto bbincrease bbthe bblevel bbof bbeconomic bbactivity
How bbdoes bbmonetary bbpolicy bbaffect bbthe bbeconomy? bb- bbANSWER: bb bb➡ bbDuring bbperiods bbof bbrecession,
bbthe bbFederal bbReserve bbgenerally bbincreases bbthe bbmoney bbsupply, bbloosens bbcredit bbrestrictions, bband
bbattempts bbto bbdrive bbdown bbinterest bbrates bbas bbthese bbactions bbtend bbto bbstimulate bbthe bbeconomy. bbThe
bbreserve bbprevails bbduring bbtimes bbof bbexpansion, bbwhen bbinflation bbis bbthe bbFed's bbkey bbconcern.
What bbis bba bbliquidity bbratio? bb- bbANSWER: bb bb➡ bbMeasure bbof bba bbcompany's bbability bbto bbmeet bbits bbshort
bbterm bbfinancial bbobligations
What bbis bbcurrent bbratio? bb- bbANSWER: bb bb➡ bbCurrent bbassets/current bbliabilities
What bbis bba bbquick bbratio? bb- bbANSWER: bb bb➡ bb(Current bbassets bb- bbinventory)/current bbliabilities
What bbis bba bbprofitability bbratios? bb- bbANSWER: bb bb➡ bbMeasure bbthe bbrelative bbprofitability bbof bba bbcompany
What bbis bbreturn bbon bbequity? bb- bbANSWER: bb bb➡ bbNet bbearnings/net bbworth
What bbis bbreturn bbon bbcommon bbequity? bb- bbANSWER: bb bb➡ bb(Net bbearnings bb- bbpreferred bbstock
bbdividends)/(equity bb- bbpreferred bbstock)
What bbis bbreturn bbon bbassets? bb- bbANSWER: bb bb➡ bbNet bbearnings/total bbassets
What bbis bba bbdebt bbratio? bb- bbANSWER: bb bb➡ bbMeasure bbthe bbextent bbto bbwhich bbthe bbfirm bbfinances bbits
bbassets bbby bbdebt
What bbis bbdebt bbto bbequity? bb- bbANSWER: bb bb➡ bbTotal bbdebt/net bbworth
What bbis bbthe bbdifference bbbetween bbinvestment bbstrategy bband bbinvestment bbpolicy? bb- bbANSWER: bb bb➡
bbInvestment bbpolicy bbsets bbforth bbthe bbfinancial bbgoals bbof bbthe bbclient. bbInvestment bbstrategy bbis bbthe bbways
bbof bbattaining bbthose bbgoals.
Explain bbthe bbrelationship bbbetween bbthe bbinvestment bbstrategy bband bbpolicy bbof bba bbclient bb- bbANSWER: bb
bb➡ bbThe bbclient bbwill bbhave bbonly bbone bbinvestment bbpolicy bbbut bbmay bbhave bbseveral bbinvestment
bbstrategies
What bbis bba bbbuy bband bbhold bbstrategy? bb- bbANSWER: bb bb➡ bbPurchasing bbsecurities bband bbholding bbthem bbfor
bba bblong bbperiod bbof bbtime bbwhile bbonly bbselling bbif bbthere bbis bba bbcompelling bbneed bbto bbdo bbso
What bbare bbthe bbbenefits bbof bba bbbuy bband bbhold bbstrategy? bb- bbANSWER: bb bb➡ bbReturns bbat bbleast bbas bbgood
bbas bbtechnical bbanalysis bbstrategies, bblow bbtransaction bbcosts, bbdeferral bbof bbcapital bbgain bbtaxes, bbnot
bbmissing bbthe bbbest bbdays bbof bbthe bbmarket
How bbdoes bbthe bbefficient bbmarket bbhypothesis bbsupport bbthe bbargument bbfor bba bbbuy bband bbhold bbstrategy?
bb- bbANSWER: bb bb➡ bbIt bbholds bbthat bbthe bbcurrent bbmarket bbprices bbreflect bball bbthe bbavailable bbinformation
bbabout bbissuers bband bbthe bbfuture bbexpectations bbof bbtheir bbinvestors; bbtherefore, bbattempts bbto bbinvest bbin
bbundervalued bbsecurities, bbwith bbthe bbinherent bbbuying bbof bbundervalued bbsecurities bband bbselling
bbovervalued bbsecurities, bbare bbcostly bband bba bbwaste bbof bbtime
Which bbindustries bbare bbexpected bbto bbdo bbwell bbduring bba bbexpansion; bbearly bbstage? bb- bbANSWER: bb bb➡
bbConsumer bbcredit, bbtransportation, bbenergy, bband bbconsumer bbcyclicals
Which bbindustries bbare bbexpected bbto bbdo bbwell bbduring bba bbexpansion; bbmiddle bbstage? bb- bbANSWER: bb bb➡
bbBasic bbmaterials
Which bbindustries bbare bbexpected bbto bbdo bbwell bbduring bba bbexpansion; bblate bbstage? bb- bbANSWER: bb bb➡
bbCapital bbgoods
Which bbindustries bbare bbexpected bbto bbdo bbwell bbduring bba bbrecession? bb- bbANSWER: bb bb➡ bbConsumer
bbstaples bband bbutilities
Define bbsector bbrotation bb- bbANSWER: bb bb➡ bbA bbtiming bbstrategy bbthat bbshifts bbportfolio bbassets bbfrom bbone
bbsector bbof bbthe bbeconomy bbto bbanother bbin bbanticipation bbof bbbroad bbbased bbeconomic bbdevelopments
Describe bbthe bbfollowing bbtechnical bbindicators bbused bbby bbcontrarians: bbshort bbselling bb- bbANSWER: bb bb➡
bbIncreasing bbshort bbselling bbin bba bbstock bbindicates bba bbgrowing bbherd bbconsensus bbthat bbthe bbmarket bbwill
bbdecline; bbthe bbcontrarian bbshould bbconsider bban bbopposite bbmove
Describe bbthe bbfollowing bbtechnical bbindicators bbused bbby bbcontrarians: bbspecialist's bbsentiment bb-
bbANSWER: bb bb➡ bbConsidered bbto bbbe bbthe bb"smart bbmoney," bbincreased bbbullishness bbby bbspecialists bbin bba
bbstock bbmakes bbcontrarians bbbullish bbas bbwell, bband bbvise bbversa
Describe bbthe bbfollowing bbtechnical bbindicators bbused bbby bbcontrarians: bbmutual bbfund bbcash bbpositions bb-
bbANSWER: bb bb➡ bbMutual bbfund bbmanagers bbare bbconsidered bbto bbbe bbherd bbanimals; bbwhen bbmutual
bbfunds bbhave bblow bband bbdecreasing bbcash bbpositions, bbcontrarians bbtake bbthis bbas bba bbsell bbsignal; bbthe
bbreverse bbis bbtrue bbas bbwell
Describe bbthe bbfollowing bbtechnical bbindicators bbused bbby bbcontrarians: bbinvestment bbadvisory bbopinions bb-
bbANSWER: bb bb➡ bbThis bbtheory bbsuggest bbthat bbthe bbaggregate bbopinion bbof bbinvestment bbadvisors bbis bboften
bbwrong. bbThat bbis bbwhen bbthe bbmajority bbof bbinvestment bbadvisors bbare bbbullish bb(bearish) bba bbcontrarian
bbshould bbsell bb(buy) bbsecurities
Describe bbthe bbfollowing bbtechnical bbindicators bbused bbby bbcontrarians: bbput bbcall bbratio bb- bbANSWER: bb bb➡
bbHigh bband bbincreasing bbput bbcall bbratios bbsuggest bbbuying bbopportunities bbto bbthe bbcontrarian, bband bblow
bbor bbdecreasing bbput bbcall bbratios bbsuggest bbthe bbopposite
List bbthree bbgeneral bbguidelines bbfor bblow bbP/E bbinvestors bb- bbANSWER: bb bb➡ bb1. bbSelect bbonly bbcontrarian
bb(low bbp/e) bbstocks, bbbut bbonly bbif bbthe bbcompanies bbhave bbsuperior bbperformance bbcharacteristics. bb
2. bbDiversify. bbA bbdiversified bbportfolio bbshould bbhave bban bbequal bbweighting bbin bb 20 - 30 bbdifferent bbstocks
bbrepresenting bb 15 bbor bbmore bbindustries bb
3. bbBuy bbonly bbshares bbof bbmedium bbto bblarger bbcompanies bbthat bbare bblisted bbon bbthe bbNYSE bbor bbonly
bblarge bbcompanies bbon bbNASDAQ/AMEX
List bbfour bbrules bbof bbthumb bbfor bbvalue bbinvesting bbas bbdeveloped bbby bbBenjamin bbGraham bb- bbANSWER: bb
bb➡ bb1. bbBuy bbstocks bbfor bbtwo bbthirds bbor bbless bbof bbtheir bbnet bbcurrent bbassets bb
bbreceived, bbworker's bbcompensation bbbenefits, bbchild bbsupport bbreceived, bbmunicipal bbbond bbinterest, bband
bbmany bbemployee bbfringe bbbenefits
define bbtax bbcredit bb- bbANSWER: bb bb➡ bbA bbdollar bbfor bbdollar bboffset bbagainst bbthe bbtax bbliability
Define bbitemized bbdeductions bb- bbANSWER: bb bb➡ bbThese bbare bbdeductions bbfor bbexpenses bbthat bbare
bbgenerally bbpersonal bbin bbnature. bbExamples bbinclude bbdeductions bbfor bbproperty bbtaxes bband bbmortgage
bbinterest bbon bba bbresidence, bbmedical bbexpenses bbexceeding bb7.5% bbof bbAGI, bbcharitable bbcontributions,
bband bbinvestment bbinterest bbexpense. bbThese bbare bboften bbreferred bbto bbas bbbelow bbthe bbline bbdeductions.
Define bbstandard bbdeduction bb- bbANSWER: bb bb➡ bbStandard bbdeduction bbrefers bbto bban bballowance bbgranted
bbto bbmost bbindividuals bbin bblieu bbof bbitemizing bbdeductions. bbA bbtaxpayer bbhas bbthe bboption bbof bbusing bbthe
bbgreater bbof bbtotal bbitemized bbdeductions bbor bbthe bbstandard bbdeduction.
What bbis bbthe bbalternative bbminimum bbtax? bb- bbANSWER: bb bb➡ bbThe bbAMT bbis bba bbtax bbimposed bbon
bbindividuals bbwho bbuse bbvarious bbdeductions, bbexemptions, bband bbtax bbsheltering bbmechanisms bbas bba bbway
bbof bbmaking bbthose bbindividuals bbpay bba bbminimum bbamount bbof bbtax. bbThe bbAMT bbincome bbis bbtaxed bbat
bbeither bb 26 bbor bb28% bbrate.
What bbis bbthe bbkiddie bbtax? bb- bbANSWER: bb bb➡ bbThe bbkiddie bbtax bbrules bbapply bbto bban bbindividual bbeligible
bbto bbbe bbclaimed bbas bba bbdependent. bbFor bbchildren bbsubject bbto bbthe bbkiddie bbtax, bbthe bbfirst bb$1,050 bbof
bbunearned bbincome bbis bbsheltered bbby bbthe bbchild's bblimited bbstandard bbdeduction; bbthe bbnext bb$1,050 bbis
bbtaxed bbto bbthe bbchild bbat bbthe bbchild's bbtax bbrate bb(typically bb10%). bbAny bbunearned bbincome bbin bbexcess bbof
bbthe bbfirst bb$2,100 bbis bbtaxed bbto bbthe bbchild bbat bbthe bbfiduciary bbtax bbrate. bbApplies bbto bbchildren bbunder bb 19
bbunless bba bbfull bbtime bbstudent bbthen bbunder bb24.
List bbthe bbsteps bbin bbthe bbtax bbcalculation bbprocess bb- bbANSWER: bb bb➡ bb1. bbTotal bbincome bb2. bbAdjustments
bbto bbincome bb3. bbAGI bb4. bbStandard bbDeduction bb5. bbTaxable bbIncome bb6. bbCalculate bbTax bb7. bbCredits bb8.
bbOther bbtaxes bb9. bbNet bbTax bbLiability
What bbis bbtax bbavoidance? bb- bbANSWER: bb bb➡ bbThe bbuse bbof bbexclusions bbto bbreduce bbthe bbcurrent bbincome
bbtax bbliability
What bbis bbtax bbreduction? bb- bbANSWER: bb bb➡ bbThe bbuse bbof bbdeductions bband bbcredits bbto bbreduce bbtax
bbliability
What bbis bbtax bbdeferral? bb- bbANSWER: bb bb➡ bbA bbpostponement bbof bbthe bbultimate bbtaxes bbthat bbmust bbbe
bbpaid bbon bbthe bbincome
What bbis bbincome bbshifting? bb- bbANSWER: bb bb➡ bbThe bbtransfer bbof bbincome bbproducing bbassets bbto bbanother
bbtaxable bbentity, bbtypically bbanother bbindividual bbin bba bblower bbmarginal bbincome bbtax bbbracket bbthan bbthe
bbtransferor
What bbis bbthe bbdifference bbbetween bbthe bbmarginal bband bbthe bbaverage bbincome bbtax bbrates? bb- bbANSWER: bb
bb➡ bbThe bbmarginal bbtax bbrate bbapplies bbto bbthe bblast bbdollar bbof bbtaxable bbincome. bbThe bbaverage bbincome
bbtax bbrate bbis bbthe bbincome bbtax bbliability bbdivided bbby bbthe bbtaxable bbincome. bbThe bbaverage bbrate bbwill
bbalways bbbe bbless bbthan bbthe bbmarginal bbrate.
What bbis bbthe bbdifference bbbetween bbwhen bbincome bbis bbreported bbunder bbthe bbcash bband bbthe bbaccrual
bbmethods bbof bbaccounting? bb- bbANSWER: bb bb➡ bbCash bbincome bbis bbrecognized bbwhen bbit bbis bbactually bbor
bbconstructively bbreceived. bbConstructive bbreceipt bboccurs bbwhen bbthere bbis bban bbunrestricted bbright bbto
bbincome bbthat bbhas bbnot bbbeen bbreduced bbto bbthe bbtaxpayers bbpossession. bbAccrual bbincome bbis
bbrecognized bbwhen bbit bbis bbactually bbearned, bbwhich bbis bbnot bbnecessarily bbwhen bbit bbis bbreceived.
How bbis bbthe bbcost bbbasis bbdetermined bbwhen bbproperty bbis bbacquired bbby bbinheritance? bb- bbANSWER: bb bb➡
bbThere bbis bbgenerally bba bbstep bbup bb(or bbdown) bbin bbbasis. bbIn bbother bbwords, bbthe bbbasis bbis bbthe bbfair
bbmarket bbvalue bbon bbthe bbdate bbof bbdeath. bbThe bbbasis bbmay bbalso bbbe bbdetermined bbby bbreference bbto bbthe
bbFMV bbon bbthe bbalternate bbvaluation bbdate, bbif bbso bbelected.
How bbis bbthe bbcost bbbasis bbdetermined bbwhen bbproperty bbis bbacquired bbby bbpurchase? bb- bbANSWER: bb bb➡
bbThe bbamount bbthat bbwas bbpaid bbfor bbthe bbproperty, bbincluding bbcosts bbassociated bbwith bbthe bbpurchase,
bbholding bbor bbsale bbof bbthe bbasset, bbconstitutes bbthe bbbasis.
How bbis bbthe bbcost bbbasis bbdetermined bbwhen bbproperty bbis bbreceived bbas bba bbgift? bb- bbANSWER: bb bb➡ bbIf
bbthe bbFMV bbof bbthe bbasset bbon bbthe bbdate bbof bbgift bbis bbgreater bbthan bbthe bbdonors bbbasis, bbthen bbthe bbbasis
bbto bbthe bbrecipient bbis bbthe bbdonors bbbasis. bb
If bbthe bbFMV bbon bbthe bbdate bbof bbthe bbgift bbis bbless bbthan bbthe bbdonors bbbasis, bbthen bba bbgain bbis bbmeasured
bbusing bbthe bbdonors bbbasis, bbwhereas bba bbloss bbis bbmeasured bbusing bbthe bbFMV bbon bbthe bbdate bbof bbthe bbgift.
