Chapter 18 Flashcards
Which of the following vehicles make use of the unified estate tax credit?
Bypass trust
Generation-skipping trust
Both the bypass trust and the generation-skipping trust are tools used by estate planners to reduce estate taxes. They do so by passing the amount in the unified credit (currently $13.610 million for 2024) to heirs other than the spouse, usually grandchildren in the case of the GST.
At what level do their benefits become subject to income tax? Social Security benefits specifically
When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000
An investor receives a prospectus for a management investment company. In the section on purchasing shares, it states that investors purchase shares at the next calculated net asset value per share (NAV). Furthermore, when shares are redeemed, the investor receives the next calculated NAV after receipt of the redemption request. The prospectus details a number of expenses, including management and custodial fees. There is also a 0.15% 12b-a charge. More than likely, the investor is reading the prospectus of
A)
a no-load fund.
B)
a closed-end fund.
C)
a front-end load fund.
D)
a back-end load fund.
No load fund
One of the features of a no-load fund is that shares are purchased at the prevailing NAV; there is no sales load. There is also no load when shares are redeemed. Another clue is that the 12b-1 charge is only 0.15% because the term no-load cannot be used if that charge exceeds 0.25%. Although Class B shares (back-end load) are also purchased at NAV, there is a back-end load (CDSL) so the investor does not receive the entire NAV. It certainly is not a front-end load (Class A) fund purchase because those shares are purchased at NAV plus the sales load. This is not a closed-end fund because those do not redeem, and the purchase price is based on supply and demand, not NAV.
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?
7
The seven-day redemption rule is required by the Investment Company Act of 1940.
Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies?
Both exchange-traded funds (ETFs) and closed-end investment companies are traded on exchanges; therefore, investors pay a commission when purchasing and liquidating shares. Only closed-end investment companies have a limited number of shares. Closed-end funds may trade at significant premiums or discounts from their NAV, while ETFs rarely stray far from the NAV.
