Finra SIE Exam - Topic 4 Question 8 Discussion

Actual exam question for Finra's SIE exam

Question #: 8
Topic #: 4

A customer purchased 100 shares of Company XYZ common stock five years ago for $20.00 per share. Over the life of her investment, the customer received cash dividends of $2.00 per share, on which she paid total income taxes of $0.50 per share. She recently sold the stock for $30.00 per share. What is the customer's cost basis in each share of XYZ stock?

A$20.00

B$21.50

C$22.00

D$30.00

Show Suggested Answer

Suggested Answer: A

The cost basis of a stock represents the purchase price and does not include dividends received. Taxes paid on dividends also do not affect the cost basis.

Original purchase price per share = $20.00.

Dividends and taxes on dividends do not adjust the stock's cost basis.

A is correct because the cost basis remains $20.00.

B, C, and D incorrectly assume that dividends or taxes change the cost basis.

by Toi at Mar 21, 2025, 10:34 PM

Limited Time Offer

25%

Off

Get Premium SIE Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Lacresha

5 months ago

Totally agree with $20.00, that’s the purchase price!

upvoted 0 times

...

Reita

5 months ago

Wait, how does selling it for $30 change the cost basis?

upvoted 0 times

...

Peter

5 months ago

Definitely $22.00 if you factor in the dividends and taxes.

upvoted 0 times

...

Amos

6 months ago

I think it's $21.50 with the taxes included.

upvoted 0 times

...

Ma

6 months ago

Cost basis is $20.00 per share.

upvoted 0 times

...

Edna

6 months ago

I feel like the taxes on dividends might play a role here, but I still think the cost basis is $20.00.

upvoted 0 times

...

Jerry

6 months ago

I practiced a similar question where dividends were included in the calculation, but I can't recall if they increase the cost basis.

upvoted 0 times

...

Alpha

7 months ago

I think the cost basis is just the initial purchase price of $20.00 per share, but I could be wrong.

upvoted 0 times

...

Margot

7 months ago

I remember that the cost basis is usually the purchase price, but I'm not sure if the dividends affect it.

upvoted 0 times

...

Sunshine

7 months ago

Wait, I'm not sure about this. I need to double-check the formula for calculating cost basis. Let me think this through again carefully.

upvoted 0 times

...

Gretchen

7 months ago

Easy peasy, the cost basis is just the original purchase price of $20 per share. The dividends and taxes don't affect the cost basis, so the answer is A.

upvoted 0 times

...

Clement

7 months ago

I think I've got this. The cost basis is the original purchase price ($20 per share) minus the net dividends received ($2 per share - $0.50 per share in taxes) which equals $21.50 per share. Option B looks right to me.

upvoted 0 times

...

Nichelle

7 months ago

Hmm, I'm a little confused on how to calculate the cost basis here. Do I need to factor in the taxes paid on the dividends or just the net dividends received?

upvoted 0 times

...

Nilsa

8 months ago

Okay, let's think this through step-by-step. The customer bought the stock for $20 per share, received $2 per share in dividends, and paid $0.50 per share in taxes on the dividends. So the cost basis should be the original purchase price minus the net dividends received.

upvoted 0 times

...

Vonda

1 year ago

I'm going with D) $30.00. Why? Because I'm feeling rebellious and want to stick it to the system. Plus, the question says she 'recently sold the stock for $30.00 per share,' so that must be the cost basis, right? Right?

upvoted 0 times

Wilbert

12 months ago

upvoted 0 times

...

Herman

12 months ago

D) $30.00

upvoted 0 times

...

Claudio

1 year ago

C) $22.00

upvoted 0 times

...

Dortha

1 year ago

B) $21.50

upvoted 0 times

...

An

1 year ago

A) $20.00

upvoted 0 times

...

German

1 year ago

I think the cost basis is $22.00, considering the dividends and taxes as well as the selling price.

upvoted 0 times

...

Colene

1 year ago

I believe the cost basis is $21.50, taking into account the dividends received and taxes paid.

upvoted 0 times

...

Mona

1 year ago

Seriously, guys? It's not that hard. The answer is B) $21.50. If you can't figure that out, you might want to consider a different career path. Maybe professional cat herder would be a better fit.

upvoted 0 times

Carri

1 year ago

D) $30.00

upvoted 0 times

...

Mila

1 year ago

C) $22.00

upvoted 0 times

...

Keneth

1 year ago

B) $21.50

upvoted 0 times

...

Shawnda

1 year ago

A) $20.00

upvoted 0 times

...

Johana

1 year ago

Easy peasy! The answer is clearly B) $21.50. You just need to do the simple math - original cost minus taxes plus dividends. This is a piece of cake compared to some of the other questions on this exam.

upvoted 0 times

...

Vi

1 year ago

I agree with Lindsey, it should be $20.00 because that's what she originally paid per share.

upvoted 0 times

...

Boris

1 year ago

Hmm, I'm not sure about this one. The dividends and taxes are a bit confusing. I'll go with C) $22.00 just to be safe.

upvoted 0 times

Alba

1 year ago

C: I'm going with $22.00, just to be safe.

upvoted 0 times

...

Gerald

1 year ago

B: I believe it's $21.50 because of the dividends and taxes.

upvoted 0 times

...

Tonja

1 year ago

A: I think the cost basis is $20.00.

upvoted 0 times

...

Lindsey

1 year ago

I think the cost basis is $20.00.

upvoted 0 times

...

Juan

1 year ago

I think the answer is B) $21.50. The customer paid $20.00 per share, received $2.00 per share in dividends, and paid $0.50 per share in taxes, so the cost basis should be $20.00 - $0.50 + $2.00 = $21.50 per share.

upvoted 0 times