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Funds 103: Earnings from Mutual Funds

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1.
Returns of capital in a mutual fund are paid to augment dividends.
Choose wisely. There is only one correct answer.
False. Returns of capital may be paid to investors for any of several reasons, such as excess cash, but not to augment dividends.
2.
The confirmation statement sent to investors after a dividend reinvestment states all but which of the following?
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An investor's capital gains. Capital gain information arrives in a different notice.
3.
Ordinary dividends are earned when a mutual fund sells securities for a profit.
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False. Capital gains dividends are earned in this way, but ordinary dividends are distributions of interest or dividends from the fund's holdings.
4.
How does a mutual fund increase its value?
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It receives the dividends, interest, and capital gains from the securities in its portfolio. The fund then passes these earnings to shareholders.
5.
A capital gain on a share held for five years will be taxed at a lower rate than a share held for four months.
Choose wisely. There is only one correct answer.
True. Once you have held a share for more than one year, your capital gains tax drops.
6.
Because it is a sum, a total return is positive.
Choose wisely. There is only one correct answer.
False. If there has been a substantial loss in net asset value, the sum may be negative.