Choose wisely. There is only one correct answer to each question.
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1.
The confirmation statement sent to investors after a dividend reinvestment states all but which of the following?
An investor's capital gains. Capital gain information arrives in a different notice.
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.
Mutual funds earn money when investors buy and sell their shares.
False. Mutual funds earn money when their underlying securities earn money.
4.
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.
5.
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.
6.
Which of the following is not a dividend?
The sale of a mutual fund share. When individual shareholders sell their shares, these shares are not dividends.
