DIncome trusts distribute all or most of their cash flow to investors, which can lead to price volatility similar to stocks (C). The distributions from income trusts often have tax implications similar to dividends, where part of the distribution may be treated as a return of capital or other income, affecting the tax treatment (D).

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An Income Trust

Question 62

Multiple Choice

An income trust

A) pays taxes on its earnings and then distributes the remainder of the cash flow to investors.
B) is a good replacement for bonds in your asset allocation.
C) is similar to a stock investment in price volatility but pays all cash flows to investors.
D) has tax implications similar to dividends.

Correct Answer: