Series 7 Exam Question 128: Answer and Explanation

Question: 128

One of your clients has made the following transactions:

I. February 4th he purchased 100 shares of DIM at $40

II. March 15th he purchased 100 shares of DIM at $50

III. July 19th he sold 100 shares of DIM at $46

IV. What is the capital gain or loss?

• A. $400 gain
• B. $400 loss
• C. $600 gain
• D. $600 loss

Correct Answer: C

Explanation:

C. Unless the client specifies that they want it done a different way, the transactions would be executed first in, first out (FIFO). This means that the first securities they purchased (the ones at $40) would be the first ones sold. Therefore, they would have a $600 gain ($4,600 selling price - $4,000 purchase price).