EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Question
Chapter 28, Problem 7CP
a.
Summary Introduction
To state: Key elements foundation would consider before spending policy.
Introduction: The model that shows the relation between systematic risk and expected
b.
Summary Introduction
To formulate: Investment policy statement
Introduction: The model that shows the relation between systematic risk and expected return on assets (especially stocks) is known as capital asset pricing model (CAPM).
c.
Summary Introduction
To Suggest: Long term allocation consistent with investment policy statement.
Introduction: The model that shows the relation between systematic risk and expected return on assets (especially stocks) is known as capital asset pricing model (CAPM).
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Frank is a widower. He has a $15.3 million estate consisting primarily of undeveloped real estate and life insurance. His children are the beneficiaries of his life insurance. His will leaves 30% of probate assets to each of his three children, with the residue to his cousin, James. Frank learned that his estate may have liquidity problems when he dies.
Which one of the following techniques is the most appropriate to increase liquidity in Frank's estate?
A)
Change the beneficiary on his life insurance to his estate
B)
Transfer existing life insurance policies to an irrevocable life insurance trust with his children as beneficiaries, which allows the trustee to purchase some of the hard-to-sell property from the estate and/or to loan funds to the estate
C)
Place the undeveloped real estate in a qualified terminable interest property (QTIP) trust and make the QTIP election
D)
Amend his will to place the undeveloped real estate in an power of appointment trust
Rhonda owns the following assets:
A residence owned with her husband as joint tenants with right of survivorship
A solely owned closely held business that comprises one-half of the value of her large estate
A large collection of antique figurines
Rhonda's will bequests $10,000 to her only niece and leaves the balance of her estate to her husband if he survives her. Because Rhonda can no longer obtain life insurance, she is looking for other methods to provide the liquidity needed for her estate.
Which of the following actions would have the potential to improve the liquidity of Rhonda's estate?
Retitling the residence she owns with her husband as tenants by the entirety
Selling or giving away the antique figurines
Eliminating the bequest in her will to her niece
Her husband could waive the executor fees
A)
I and II
B)
II, III, and IV
C)
I, II, and III
D)
III and IV
Dan is the sole owner of his closely held business and he is considering retiring within the next few years. Dan's basis in the property is $500,000 and the current FMV of the business is $1,500,000. Dan would like to see his business continue within his family and be operated by his only child, Amy. If Dan eventually gifts his entire business interest to her, which one of the following statements is correct?
A)Amy will have capital gain in the property of $500,000.
B)Amy will have a carryover basis in the property of $500,000.
C)Amy will have a stepped-up basis in the property of $1,500,000.
D)Amy will have an adjusted basis in the property of $1,000,000.
Knowledge Booster
Similar questions
- Jacob owns a modest house on a large, ocean-front lot in a region where development is booming. Seeking to cap his estate-tax exposure, Jacob sells a remainder interest in the property to Alice — Jacob’s committed partner to whom he is not married — for its actuarial value. Jacob continues to reside in the property pursuant to his retained life estate for the remainder of his lifetime. At the time of the sale of the remainder, the fee interest was valued at $3 million, and the remainder was valued at $1 million. Upon Jacob’s death five years later, the value of the property had increased to $5 million. Discuss the estate tax consequences to Jacob’s estate.arrow_forwardHal and Wendy are married, and they own a parcel of realty, Blackacre, as joint tenants with the right of survivorship. Hal owns an additional parcel of realty, Redacre, in his name alone. Suppose Hal should die when Blackacre is worth $800,000 and Redacre is worth $725,000, what value of realty would be included in Hal's probate estate? Same facts as the prior question, what value would be included in Hal's gross taxable estate?arrow_forwardJane has a gross estate estimated at $12 million. Approximately 75% of her estate is attributable to the value of personal property and collectible items. Jane is married but has no children. Her husband does not have a large estate because he spends money freely and foolishly. Since Jane is much older than her husband, she would like for him to benefit from her wealth after her death without giving him control over the principal either while he is alive or at his death. Jane wants as little of her estate assets as possible to go toward payment of estate taxes. She currently has no will but has come to you for advice regarding provisions she should put in a will. Which provision, if placed in her will, would be best to increase the liquidity of her estate and accomplish her other goals? A) Establish a testamentary trust naming her husband as the income beneficiary and trustee B) Establish a power of appointment trust naming her husband as the income beneficiary and a…arrow_forward
- Cora, 79, has an estate that includes her personal residence valued at $120,000 and $18,000 in a bank account that is solely in her name. She would like to arrange her estate so that she maintains exclusive control of the assets during her lifetime, but at her death the assets will pass to her friend, Mabel, outside of probate. Based on Cora's goals and situation, which of the following are correct statements about will substitutes that she could use? She should put her bank account in tenancy in common with Mabel. She should title her personal residence in joint tenancy with her friend, Mabel. She should execute a will that names her friend, Mabel, as the legatee of the bank account and the devisee of the personal residence. She should place the bank funds in a payable on death (POD) account with Mabel as beneficiary. She should change the title on her personal residence to indicate a life estate reserved for her lifetime and a remainder to her friend, Mabel. A)IV and V…arrow_forwardSeveral years ago, Georgia transferred $500,000 of real estate into an irrevocable trust for her son, Lee. The trustee was directed to retain income until Lee's 21st birthday and then pay him the corpus of the trust. Georgia retained the power to require the trustee to pay income to Lee at any time and the right to the assets if Lee predeceased her. What amount of the trust, if any, will be included in Georgia's estate if she dies this year when the value of the real estate in trust is $700,000? Amount to be included in Georgia's estatearrow_forwardValentino's will leaves his half of his probate estate to a testamentary trust in which his wife and child are income beneficiaries, and his children the remainder beneficiaries. The will gives the remainder of his probate estate outright to his child. Valentino wanted to be assured that both his wife and children received some part of his estate while incurring minimal estate administration fees. Valentino has a gross estate of $2 million. Since the will was drafted, Valentino has had second thoughts about the way he decided to distribute the assets of his estate. Does Valentino need to consider amending his will? A)Yes, because if his wife predeceases him, her portion of the estate will pass through intestacy at Valentino’s death and be distributed to unintended beneficiaries. B)No, because there will be no estate tax to be paid out of pocket by his estate. C)No, because the spousal elective share given to his wife by state statute will permit her to take all of…arrow_forward
- Andy, 68, has a gross estate currently valued at $2,500,000 that consists primarily of highly appreciated growth securities. Within the last six months, Andy transferred $500,000 worth of these securities to his wife, Harriet. His cost in these securities was $200,000. Harriet recently died. The fair market value of the transferred securities at the time of her death was $500,000. The securities passed to Andy under the terms of Harriet's will. Which one of the following is an income tax implication of the transfer of stock? A) Andy must recognize $300,000 in capital gain on the stock as of Harriet's death. B) If Andy sells the stock he received from Harriet immediately after her death, his gain, if any, will be deemed to be short-term capital gain. C) Andy's basis in the stock is $200,000. D) Andy's basis in the stock is $500,000.arrow_forwardYour client, age 74, has an estate consisting of solely owned assets valued at $4,500,000. His will, drafted in 2012, leaves his entire estate to his wife. No contingent beneficiary is named, and the will has no residuary clause. He would like his children to receive a tract of land worth $1,000,000 that is located in an out-of-state resort area. Your client has made $300,000 in adjusted taxable gifts to date. Which of the following are estate planning pitfalls that can be avoided if your client takes the actions described? He can avoid subjecting the estate to an ancillary probate procedure by placing the out-of-state property in joint tenancy with right of survivorship with his children. He can avoid subjecting the estate to probate by amending his will to place all of his assets in an irrevocable bypass trust. He can avoid causing part of the estate to pass to unintended beneficiaries by amending his will to name contingent beneficiaries and adding a residuary clause. He can avoid…arrow_forwardEliza purchased a life insurance policy on her own life. Eliza is not married and does not have any children, but she is fond of her neighbor and some of her close relatives. She has expressed some concern about owing estate taxes at her death; however, she refuses to implement any trust planning for her estate. Accordingly, Eliza executed a will that leaves all of her personal property to her neighbor, and all of her remaining assets to her close relatives. She has named her estate as the beneficiary of her life insurance policy. Which of the following are correct statements regarding the advantages or disadvantages of the life insurance policy beneficiary designation? Eliza's estate may use the life insurance policy death benefit to pay any estate taxes due. Since the estate was named as the beneficiary of the life insurance policy, the death benefit may only be used to pay expenses of estate administration and creditors of the estate. The life insurance policy death benefit will be…arrow_forward
- In the current year, Mary entered in to the following separate independent transactions: a) Mary sold shares of a public corporation to her husband. The shares, which had a value of $10,000 at the time of the sale, originally cost $4,000. Mary sold them to her husband for $7,000 in cash. During 2020, Mary’s husband received dividends of $500 on these shares. In January 2021, Mary’s husband sold the shares. Assume the couple do not elect out of the 73(1) rollover. b) Mary transferred shares of a public corporation with a fair market value of $8,000 to her RRSP. The shares originally cost $10,000 when first purchased by Mary. Required: (a) Describe the tax consequences, in detail, of these transactions for Mary, and her husband in 2020 and 2021.arrow_forwardKaren is the sole owner of a wildly successful small business. However, Karen's financial advisor has told her that her estate would be unable to meet its cash requirements if she were to die today, and the business would have to be sold. Karen, who is a widow with not children, is only 50 and plans to continue running the business for many years. However, she does want to take some action to prevent the possible sale of the business should she die, and prevent future appreciation of the business from inclusion in her gross estate. Karen is very close to one of her nieces, who has shown an interest in and aptitude for the business. Which one of the following actions would be most appropriate to help meet the liquidity needs of Karen's estate and would be consistent with her objectives and situation? A)Karen should enter into a private annuity agreement with her niece regarding the business. B)Karen should convert the business into an S corporation and gift shares in the…arrow_forwardRami and Wendy are married, and they own a parcel of realty, Blackacre, as joint tenants with the right of survivorship. Rami owns an additional parcel of realty, Redacre, in his name alone. Suppose Rami should die when Blackacre is worth $800,000 and Redacre is worth $750,000. What value of realty would be included in Rami's probate estate, and what value would be included in Rami's gross estate? Value of realty in probate estate Value of realty in gross estatearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
