In 2012, Arnold Invests $80,000 for a 20% Interest in a Partnership

question 88

Multiple Choice

In 2012, Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

• A)Since Arnold has only $80,000 of capital at risk, he cannot deduct any more than this amount against his other income.
• B)Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
• C)If Arnold has taxable income of $40,000 from the partnership in 2013 and there are no other transactions that affect his at-risk amount, he can use all of the $20,000 loss carried over from 2012.
• D)Arnold's $100,000 loss is nondeductible in 2012 and 2013 under the passive loss provisions.
• E)All of the statements are correct.

Understand the distinction between diversifiable (unsystematic) risk and non-diversifiable (systematic) risk.

Realize the implications of portfolio construction on risk reduction and the concept of the efficient frontier.

Identify how market risk premiums are used to compensate investors for taking on additional risk.

Interpret the impact of economic downturns on diversified and non-diversified portfolios.

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Definitions:

Natural Selection

Natural selection is a mechanism that can lead to adaptive evolution, whereby differences in the phenotypes of individuals cause some of them to survive and reproduce more effectively than others and therefore outcompete them.

Synapomorphy

A characteristic or trait that is shared by two or more taxonomic groups and is derived from their most recent common ancestor, indicating a phylogenetic relationship.

Molecular Phylogeny

The analysis of the molecular structure of DNA, RNA, or protein sequences to determine genetic relationships and evolutionary histories among different species.

Amino Acids

Organic compounds serving as the building blocks of proteins, crucial for life and involved in various metabolic processes.