Huxley lost $400 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utili
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Huxley lost $400 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?.
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- I have a client who is in his 70's. in 2020, he incurred significant capital losses in the amount of $65,000 because he sold some stocks when the stock market fell as a result of the pandemic. Because my client's losses are investment losses (and therefore capital), he can only deduct $3,000 per year against other income. With $65K in losses, it will take him more than 21 years to recover those losses. Since he is in his 70's, he may not live that long. What advice might you give him to use up those losses faster?Albion is looking for ways to increase his bottom line by reducing his operating expenses, so he consults his most recent income statement. which of the following should he focus on? a.) Advertising costs b.) Interest payments c.) Income taxes d.) Foreign exchange lossesBrittany Callihan sold stock (basis of 184,000) to her son, Ridge, for 160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for 190,000? For 152,000? For 174,000? c. Prepare your solution using spreadsheet software such as Microsoft Excel. The spreadsheet should compute the gain or loss for Ridge for all scenarios. Use the IF function to compute the right of offset. d. Write a letter to Brittany in which you inform her of the tax consequences if she sells the stock to Ridge for 160,000. Explain how a sales transaction could be structured that would produce better tax consequences for her. Brittanys address is 32 Country Lane, Lawrence, KS 66045.
- Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them. She believes that if she just holds on to them a little longer they will recover, at which time she will sell them. Which behavioral characteristic is the basis for Davis’s decision making?a. Loss aversion.b. Conservatism.c. Representativeness.Tom and Harry are friends. Tom was injured in an accident and received a settlement. He is living off the invested amount from that settlement, since he is no longer able to work. Harry is saving money to buy a boat, something he has wanted all his life and is anxious to get as soon as he has saved enough to pay for it. Based only on transaction costs (not taxes or other factors), which of these two investors would fit into a clientele that prefers stocks with high dividend payout ratios over non-dividend-paying stocks? A. We can’t say, since the concept of a clientele can be applied only to personal taxes, not to transaction costs. B. Harry, saving for a boat, is more likely to be in the high dividend clientele. C. Both are equally likely to fall into this clientele D. Tom, living off his settlement, is more likely to be in the high dividend clientele.Nancy Cotton bought 400 shares of NeTalk for $15 per share. One year later, Nancy sold the stock for $21 per share, just after she received a $0.90 cash dividend from the company. a. What is the total dollar return earned by Nancy for the year? b. What is the rate of return earned by Nancy?
- Discuss why General Motors’ stockholders probably didn’t suffer as a result of the reported loss. What do you think was the basis for our conclusion?The three brathers inherited the money from their late father. The youngest and middle son decided to put their money in the bank, The eldest son also considered the possibility of other ways of investing, such as in precious metals, securities or buying an investment apartment. He considered these options in the context of the future economic situation (improvement, no change, deterioration, decline) and percentage returns from individual investment options. He described the decision problem using the following table with estimates of the size of revenues. Use the EMV criteria to determine the most appropriate way to invest your eldest son. Preferences 0.052 0.2 0.056 0.692 Improvement no change deterioration decline precious metals 16.375 16 15.625 14.875 securities 10 10 8.25 0 investment apartment 6.75 1.75 1 1 Now write what is the best expected return (EMV)?Understand the reporting effect: If Brooke sells the stock and includes the $80,000 gain in pretax income, will she get her bonus? Assume any bonus paid to Brooke is not included in calculating pretax income. Specify the options: Instead of reporting the gain as part of pretax income, how else might Brooke report the gain on the sale? Identify the impact: Does Brooke's decision to classify the gain on the sale of treasury stock as part of pretax income affect the company?
- Understand the reporting effect: If Brooke sells the stock and includes the $80,000 gain in pretax income, will she get her bonus? Assume any bonus paid to Brooke is not included in calculating pretax income. No, Brooke will not receive a bonus since bonuses are only paid out when operational profits grow by 10%, but this is a capital gain on the sale of an investment or shares, thus it is not a component of operating earnings. She will receive a bonus only if operational profits grow by 10%. Specify the options: Instead of reporting the gain as part of pretax income, how else might Brooke report the gain on the sale? Brooke Report this profit as a capital gain or profit on the sale of an investment; it is not included in revenue or operational profits. Identify the impact: Does Brooke's decision to classify the gain on the sale of treasury stock as part of pretax income affect the company? Yes, Brooke's choice has an impact on the firm since earnings have increased as a…Bruce buys $9,000 of Sketchy Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by 62%. What is the percentage increase now required for the value of Bruce's stock to get back to what he paid for it?Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to your roommate how this situation could occur.