Financial Literacy Quiz

Supervised by the Federal Reserve Board, Daivontae's Financial Group provides investment advisory services, insurance underwriting, securities underwriting, and merchant banking services. Daivontae's Financial Group is most likely which business type?

• credit union

• accounting firm

• commodities investor

• financial holding company

Answer explanation

Daivontae's Financial Group, supervised by the Federal Reserve Board and offering various financial services, is most likely a financial holding company due to its diverse range of financial activities.

Mizani is consulting with her financial adviser to determine which investment would allow her to report less income on her tax return, thereby reducing the amount of tax she owes. Which type of investment is Mizani looking for?

• a tax bracket

• a gains tax

• a tax shelter

• a subsidiary shelter

Answer explanation

Mizani is looking for a tax shelter investment to report less income on her tax return and reduce the amount of tax owed.

Upon the death of his uncle, Arnez was told he would have to pay taxes on the car his uncle left to him. The uncle's wife, Mizani, was free from paying taxes on the items left to her. Why?

• His aunt’s earning potential is diminished due to age.

• Estate taxes only apply to heirs and not living spouses.

• Spouses do not have to pay capital gains taxes in cases of death.

• The car is more than ten years old and is not considered an asset.

Answer explanation

The correct choice is that estate taxes only apply to heirs and not living spouses.

Mizani paid a tax that was included in the price of her new luxury car. This ad valorem tax is called a/an:

• gift tax

• sales tax

• excise tax

• luxury tax

Answer explanation

Mizani paid a luxury tax that was included in the price of her new luxury car, making it the correct choice.

Five months ago, Korey bought 500 shares of stock at $25 per share. Today, he sold all 500 shares for $48 per share. What type of tax is Korey obligated to pay as a result of this financial transaction?

• capital gains tax

• luxury tax

• excise tax

• sales tax

Answer explanation

Korey is obligated to pay capital gains tax because he made a profit by selling his stock at a higher price than he bought it for.

Mizani has invested in a municipal bond that earns interest not subject to federal or state income tax. This type of investment is known as:

tax-exempt. B. tax-deferred. C. a value stock. D. a discretionary tax

• a value stock

• tax-deferred

• a discretionary tax

• tax-exempt

Answer explanation

The correct choice is tax-exempt because the municipal bond earns interest not subject to federal or state income tax.

Imagine Mizani earns $100,000 a year and pays 30% in income tax, while Mason earns $30,000 a year but pays only 10% in income tax. This scenario exemplifies which type of tax system?

• flat tax system

• regressive tax system

• progressive tax system

• proportional tax system

Answer explanation

This scenario exemplifies a progressive tax system where the tax rate increases as income increases, resulting in Mizani paying a higher percentage of tax on her $100,000 income compared to Mason's $30,000 income.

In his role as a virtual auditor for a major retail company, what must Mason do after identifying a potential compliance issue in the sales records?

• find out who was responsible for recording the questionable transactions

• enter all questionable transactions into the operational financial system

• delete all exceptions and questionable transactions from the system

• link all related questionable transactions for further investigation

Answer explanation

Mason must link all related questionable transactions for further investigation to address the compliance issue effectively.

Compliance in the finance industry involves financial institutions like Mason's Credit Union operating within:

• specific territories.

• organizational plans.

• regulatory guidelines.

• different relationships.

Answer explanation

Compliance in the finance industry involves financial institutions like Mason's Credit Union operating within regulatory guidelines, ensuring adherence to legal requirements and standards.

Daivontae received the gift of a car from his cousin Rakiyah for much less than the actual value. Who, as required by law, pays the gift tax on the car?

• Rakiyah pays the gift tax.

• Daivontae pays the gift tax.

• The car is a tax-exempt gift.

• They split the tax payment evenly.

Answer explanation

Rakiyah pays the gift tax as the giver of the car, as required by law.