Heidi Invested in a Mid-Sized Local Company with Gross Assets

question 100

Multiple Choice

Heidi invested in a mid-sized local company with gross assets of $17,000,000.Heidi purchased 2,000 shares for $44,000 in 1998.In 2014,Heidi sold the stock for $84,000.How is the gain treated for tax purposes?

• A) $40,000 capital gain and taxed at preferential rates.
• B) $20,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular rates.
• C) $20,000 excluded from gross income under Section 1202 and $20,000 taxed at 28%.
• D) $20,000 excluded from gross income under Section 1202 and $20,000 taxed at preferential capital gains rates.

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Definitions:

Expected Return

is the average return anticipated on an investment, factoring in the probability of each possible outcome.

Beta Coefficient

A measure of a stock's volatility in relation to the overall market, indicating the stock's risk compared to the market average.

Systematic Risk

The risk inherent to the entire market or market segment, indicating how fluctuations in the market can affect individual investments.

Risky Asset

An asset that carries a significant degree of risk of losing all or part of its value.