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Series 7- Quiz - 2
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A regressive tax applies the same rate regardless of income level, meaning it disproportionately affects lower-income individuals since they pay the same percentage as higher-income individuals. Sales tax is a classic example of a regressive tax, as everyone pays the same rate on goods purchased, regardless of their income. In contrast, progressive taxes, such as income, gift, and estate taxes, increase with the taxpayer's income or wealth, resulting in higher rates for higher-income individuals.

When a customer specifies the three key order details—asset (security), action (buy or sell), and amount (number of shares or units)—the order is not considered discretionary. The registered representative can decide on the time and/or price of execution without written discretionary authorization. This is known as a time/price exception.

Under SEC regulations, a registered investment company with a name suggesting a specific investment focus, such as "Green Energy Fund," is required to invest at least 80% of its assets in securities related to that focus—in this case, green energy. This rule is intended to prevent misleading fund names and ensure that investors can rely on a fund’s name as an indication of its primary investment holdings.

Callable preferred stock gives the issuing company the right to repurchase the shares at a future date, known as "calling" the stock. To make callable preferred stock appealing, companies typically set the call price above the stock’s par value. This premium compensates investors for the potential risk of having their shares called back and enhances the stock’s attractiveness. Unlike option D, investors cannot unilaterally sell back the stock; only the issuing company holds the call option.

In bond terminology, "basis" is another way to refer to the bond’s yield-to-maturity. Therefore, if a bond has a yield-to-maturity of 5.31%, it can be described as having a 5.31% yield or a 5.31 basis. Yield-to-maturity (YTM) represents the total return expected on a bond if held until it matures. This term is distinct from the bond's "coupon," which is the fixed interest rate paid periodically to bondholders, and unrelated to dividends, which are typically associated with stocks.

A Yankee bond is a type of bond issued by a foreign entity but denominated in U.S. dollars and sold in the U.S. market. These bonds are registered with the SEC and are typically issued to raise capital within the U.S. Yankee bonds allow foreign companies, governments, or institutions to tap into U.S. capital markets, providing U.S. investors with access to foreign issuers.

Regulation S allows U.S. companies to issue securities outside the U.S. without registering with the SEC, provided the securities are only sold to non-U.S. investors. However, if these securities are later sold to U.S. investors, a "seasoning period" applies to ensure the securities were initially targeted at foreign markets. For debt securities, the seasoning period is 40 days, while for equity securities, it is one year. This rule helps maintain the integrity of the Regulation S exemption by preventing immediate resale in the U.S.

Tax Anticipation Notes (TANs) are short-term securities issued by municipalities to finance current operations with the expectation that they will be repaid using future property tax receipts. These notes help municipalities manage cash flow and cover operational expenses until taxes are collected. Unlike Bond Anticipation Notes (BANs) or Construction Loan Notes (CLNs), which are linked to future bond issues or specific construction projects, TANs are specifically tied to anticipated property tax revenues.

U.S. government bonds, such as Treasury notes and bonds, are quoted as a percentage of their par value, similar to other bonds, but they are quoted in increments of 1/32 of a point. This allows for precise pricing. For instance, a quote of 96.05 represents 98 5/32, which is equal to 98.15625% of par, or $981.5625 on a $1,000 bond.

When an annuitant dies during the accumulation phase of a variable annuity, the value of the annuity is included in the annuitant’s estate for calculating federal estate taxes. Additionally, the beneficiary must pay ordinary income tax on the amount received that exceeds the cost basis. However, the death benefit bypasses the probate process, allowing it to be transferred more quickly to the beneficiary.