Han Purchases a 25% Interest in the CHOP Partnership from Huang

question 46

Multiple Choice

Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000. The partnership has assets with a basis of $1,600,000. What is the amount of the basis adjustment, if the partnership has a 754 election in place?

• A)$0
• B)$150,000 increase in Han's basis in his partnership interest
• C)$200,000 increase in Han's share of the basis in partnership assets
• D)$1,000,000 increase in partnership assets

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Definitions:

Security Market Line

A line that represents the relationship between the expected return of an investment and its risk as measured by beta.

Underpriced Security

A financial security that is selling for a price believed to be below its true value or potential market price, presenting a buying opportunity.

Market Portfolio

A portfolio consisting of a mix of all available investments in the market, weighted by market value, which represents the entire stock market or a particular segment of it.

Risk Aversion

The tendency of investors to avoid unnecessary risk, preferring safer investments over riskier ones for the same expected return.