The Use of the FIFO Method Generally Increases Taxable Income

question 154

Multiple Choice

The use of the FIFO method generally increases taxable income:

• A) when prices are constant.
• B) when prices are declining.
• C) when prices are increasing.
• D) under all circumstances.

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Definitions:

Return on Stock

The gain or loss on a stock investment, expressed as a percentage of the investment’s initial cost.

Optimal Risky Portfolio

A portfolio that offers the highest expected return for a given level of risk, according to modern portfolio theory.

Risk Free Rate

The theoretical rate of return on an investment with no risk of financial loss, often represented by government bond yields.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, widely used in finance to gauge the volatility of an investment.