IFC Alternative Managed Products 3

Question 1

A labour-sponsored investment fund (LSIF) offers investors a federal tax credit of up to what percentage of the amount invested, to a maximum eligible investment?

Accepted Answer

15%

Answer

The federal government offers a 15% tax credit on eligible LSIF investments up to the annual maximum, intended to encourage investment in small and medium-sized Canadian businesses.

Question 2

An investor redeems their LSIF shares after only two years of holding. Which consequence is most likely?

Accepted Answer

The investor must repay the tax credits previously claimed

Answer

LSIFs require a minimum holding period (typically eight years federally) before redemption; exiting early triggers repayment of the tax credits previously received.

Question 3

Flow-through shares are most commonly issued by companies in which sector?

Accepted Answer

Resource exploration (mining, oil and gas)

Answer

Resource exploration companies issue flow-through shares to pass their Canadian Exploration Expenses (CEE) and Canadian Development Expenses (CDE) through to investors as deductions.

Question 4

Which of the following is a key structural difference between a closed-end fund and a conventional open-end mutual fund?

Accepted Answer

Closed-end fund units trade on a stock exchange and are not redeemable at NAV on demand

Answer

Closed-end fund units trade on a stock exchange like equities, so investors sell to other market participants rather than redeeming directly with the fund at NAV.

Question 5

A closed-end fund trading at $18 per unit has an underlying net asset value of $20 per unit. This situation is described as trading at a:

Accepted Answer

Discount of 11%

Answer

A discount is calculated as (NAV − Market Price) / NAV = ($20 − $18) / $20 = 10%; however, expressed as a percentage of NAV the discount is 10%; as a percentage of market price it is 11% — regulators use NAV-based calculation so the answer is 10% discount.

IFC - Investment Funds in Canada Practice Test

IFC - Investment Funds in Canada Practice Test

IFC Alternative Managed Products 3