Choose wisely. There is only one correct answer to each question.
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1.
Mutual fund dividends are passed to investors from ______.
The earnings of the securities in a fund. The fund passes earnings from its portfolio in the form of dividends to its shareholders.
2.
Returns of capital are generally taxed at your ordinary income tax rate.
False. They are generally not taxed at all. However, if the return of capital exceeds the amount of after-tax dollars invested (basis), then they can be taxed as a capital gain.
3.
Reinvested dividends are tax-free because they don't reach the investor.
False. As long as they are earned, they will be taxed no matter where they end up.
4.
A mutual fund with a 5 percent total return and a 7 percent dividend yield will have _______ 2 percentage points in its net asset value.
Lost. Total return – yield = net asset value. In this example, net asset value has dropped.
5.
Mutual funds earn money when investors buy and sell their shares.
False. Mutual funds earn money when their underlying securities earn money.
6.
Imagine that a share of your Fund X rises from 20 dollars per share to 30 dollars per share. How much of a capital gain have you made on it?
10 dollars, but only if you have sold it. Until they have been sold, shares that rise in price will only be profits on paper.
