Series 7 practice questioneasyTax Implications — Cost Basis
The average cost basis method for determining capital gains is available for which type of security?
- AIndividual stocks
- BCorporate bonds
- CMutual fund shares✓ Correct answer
- DOptions contracts
Explanation
Why C — Mutual fund shares
The average cost method is available for mutual fund shares and certain dividend reinvestment plan shares. Under this method, the cost basis is calculated by dividing the total cost of all shares by the total number of shares owned. This method is simpler than FIFO or specific identification when an investor has made many purchases over time through systematic investment plans.
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