Jose, Mahlon, and Eric Are Partners in New Communications Partnership

question 73

Multiple Choice

Jose, Mahlon, and Eric are partners in New Communications Partnership. Jose owns a 50% interest, Mahlon owns a 35% interest, and Eric owns a 15% interest. During the current year (the first year of operation for the enterprise) , the business has a loss. Although the partnership is established as a general partnership, Jose functions as the manager and performs all of the day-to-day duties of a chief operating officer. Mahlon and Eric are merely investors who receive monthly reports about the business. At the close of the current tax year, each partner will receive a share of the partnership loss. Which of the partners will be able to deduct his (their) share of the partnership loss?
I.Jose
II.Mahlon
III.Eric
​

• A)Mahlon
• B)Jose, Mahlon, and Eric
• C)Jose
• D)Jose and Mahlon
• E)Mahlon and Eric

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Definitions:

Sharpe Measure

A ratio used to evaluate the risk-adjusted return of an investment, calculated by subtracting the risk-free rate from the return of the investment and dividing by the investment's standard deviation.

Excess Returns

Returns on an investment that exceed the benchmark or risk-free return, often used as a measure of the performance of investment managers.

Risk-free Asset

An investment that is expected to deliver its promised returns without any risk of financial loss, typically associated with government bonds.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk compared to a risk-free investment.