Which One of the Following Statements Correctly Describes the Major

question 121

Multiple Choice

Which one of the following statements correctly describes the major drawback of a zero- coupon bond?

• A) Unless the bond is held in a tax-sheltered account, the investor must pay taxes on the annual accrued interest even though no interest is actually received.
• B) The conversion feature found on most zero-coupon bonds generally requires the investor to switch to a coupon-bearing bond after a period of 5 years.
• C) The lack of an annual coupon basically prohibits the investor from locking in a high rate of return.
• D) Because there is no reinvestment of a coupon payment, large capital losses accrue when interest rates decline.

Understand the structure and phases of tax-deferred pension plans.

Identify the different types of Individual Retirement Accounts (IRAs) and their characteristics.

Recognize the conditions under which deductible contributions can be made to an IRA.

Comprehend the tax implications of contributions and distributions in qualified pension plans.

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Definitions:

Agreeableness

A personality trait characterized by warmth, kindness, and cooperativeness, influencing how an individual interacts with others.

Personality Preference

The tendency of an individual to favor certain behaviors or ways of thinking over others, usually based on their personality type.

Big Five

A model proposing that five broad dimensions—Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism—capture most of the variation in human personality.

Unrelated Traits

Characteristics or qualities that do not show a logical or natural relationship to each other.