4 Questions
- A REIT is taxed as
A. a corporation
B. a partnership
C. a municipal bond
D. a conduit
a conduit
- Your client is considering the Newport Land and Farming REIT and notes in the description that it is listed. What does listed mean in this context?
A. The REIT is registered and likely trades OTC.
B. The REIT is unregistered and trades only in the primary market.
C. The REIT is registered and likely trades on an exchange.
D. The REIT is unregistered and is likely trading on an OTC Bulletin Board.
The REIT is registered and likely trades on an exchange.
- All of the following are true for exchange-traded funds (ETFs) except
A. ETFs can be bought or sold throughout the trading day
B. ETFs are not marginable securities
C. ETF share prices are subject to market forces like supply and demand
D. ETF transactions are commissionable trades
ETFs are not marginable securities
- An investor has placed money in a debt-like instrument issued by a financial institution and linked to the performance of the S&P 500 Index. From the investment, which has a stated maturity date but makes no interest payments, the investor anticipates receiving a cash payment minus any applicable management fees when the instrument matures. This describes which of the following investments?
A. Municipal bond
B. Direct participation program (DPP)
C.
Exchange-traded note (ETN)
D. Variable annuity
Exchange-traded note (ETN)
Study Notes
REITs (Real Estate Investment Trusts)
- REITs are taxed as a conduit, meaning they are not taxed on their income as long as they distribute at least 90% of their taxable income to shareholders.
- A listed REIT means it is registered and likely trades on an exchange, providing liquidity to investors.
Exchange-Traded Funds (ETFs)
- ETFs can be bought or sold throughout the trading day, offering flexibility to investors.
- ETF share prices are subject to market forces like supply and demand, making them tradeable.
- ETF transactions are commissionable trades, meaning investors pay fees for buying and selling.
Exchange-Traded Notes (ETNs)
- An ETN is a debt-like instrument issued by a financial institution, linked to the performance of an underlying index (e.g., S&P 500).
- ETNs have a stated maturity date, but make no interest payments.
- At maturity, the investor receives a cash payment minus any applicable management fees.
- ETNs are not municipal bonds, direct participation programs, or variable annuities.
Test your knowledge on how Real Estate Investment Trusts (REITs) are taxed. Choose the correct option among options A to D.
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