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1.
Which of the following is not an advantage of royalty trusts?
Stable cash flows. Cash flows from royalty trusts are not predictable. Royalty trusts are affected by swings in production levels and commodity prices.
2.
Since real estate investment trusts do not hold property directly, they do not pay property taxes.
False. They do actually pay property taxes, and those taxes can eat up a big chunk of their operating expenses.
3.
The prices of MLP units often change in conjunction with changes in _______.
Interest rates. Since MLP cash distributions are so steady, many investors treat them like bonds. Thus, when interest rates rise, bond and MLP prices tend to fall. This relationship is not perfect, but it generally holds over time.
4.
As an investor in a royalty trust, you will generally have to pay state income taxes on your royalties.
True. You are liable for income taxes in the states in which the trust generates its royalties--and that could even be multiple states.
5.
If you invest in a master limited partnership that is held in a retirement account, you will not need to pay taxes on your earnings.
False. You may have to pay taxes anyway. Earnings are not generally tax-deferred.
