Emily initially purchased 200 units of the ABC Equity Fund for $20 per unit. A year later, the fund declared a return of capital (ROC) distribution of $0.50 per unit. Before reinvesting, she still holds all 200 units. What is Emily's new Adjusted Cost Base (ACB) for her investment in the ABC Equity Fund?

Question: Emily initially purchased 200 units of the ABC Equity Fund for $20 per unit. A year later, the fund declared a return of capital (ROC) distribution of $0.50 per unit. Before reinvesting, she still holds all 200 units. What is Emily's new Adjusted Cost Base (ACB) for her investment in the ABC Equity Fund?

Answer options:

• $4,000
• $3,900
• $3,800 ✅ $3,700

Correct answer: $3,700

Explanation: ROC distributions reduce the ACB. Emily's initial ACB was 200 units * $20/unit = $4,000. The total ROC received was 200 units * $0.50/unit = $100. Her new ACB is $4,000 - $100 = $3,900. Her new ACB per unit is $19.50 (3900/200). (IFIC Chapter 6: ROC)