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Funds 103: Earnings from Mutual Funds

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1.
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.
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Lost. Total return – yield = net asset value. In this example, net asset value has dropped.
2.
A mutual fund may assume that you want a dividend reinvestment plan when you open an account.
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True. Reinvestment may be a default if you do not select an option.
3.
A capital gain on a share held for five years will be taxed at a lower rate than a share held for four months.
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True. Once you have held a share for more than one year, your capital gains tax drops.
4.
Returns of capital in a mutual fund are paid to augment dividends.
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False. Returns of capital may be paid to investors for any of several reasons, such as excess cash, but not to augment dividends.
5.
Mutual fund dividends are passed to investors from ______.
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The earnings of the securities in a fund. The fund passes earnings from its portfolio in the form of dividends to its shareholders.
6.
The number of mutual fund shares that investors own determines how much of a dividend is passed on to them.
Choose wisely. There is only one correct answer.
True. Dividend payments vary according to number of shares owned.