Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
Ordinary dividends are earned when a mutual fund sells securities for a profit.
False. Capital gains dividends are earned in this way, but ordinary dividends are distributions of interest or dividends from the fund's holdings.
2.
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.
3.
Total return includes capital gains distributions.
True. Capital gains distributions are dividends.
4.
The number of mutual fund shares that investors own determines how much of a dividend is passed on to them.
True. Dividend payments vary according to number of shares owned.
5.
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.
6.
A mutual fund may assume that you want a dividend reinvestment plan when you open an account.
True. Reinvestment may be a default if you do not select an option.
