All Courses > Funds > 100
Funds 103: Earnings from Mutual Funds

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
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.
Choose wisely. There is only one correct answer.
Lost. Total return – yield = net asset value. In this example, net asset value has dropped.
2.
Reinvested dividends are tax-free because they don't reach the investor.
Choose wisely. There is only one correct answer.
False. As long as they are earned, they will be taxed no matter where they end up.
3.
Returns of capital are generally taxed at your ordinary income tax rate.
Choose wisely. There is only one correct answer.
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.
4.
You earn capital gains from your mutual fund shares when you sell them for a profit.
Choose wisely. There is only one correct answer.
True. Capital gains result from selling your assets that have risen in value.
5.
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.
6.
Ordinary dividends are earned when a mutual fund sells securities for a profit.
Choose wisely. There is only one correct answer.
False. Capital gains dividends are earned in this way, but ordinary dividends are distributions of interest or dividends from the fund's holdings.