Funds Beginner: 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.
Reinvested dividends are tax-free because they don't reach the investor.
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False. As long as they are earned, they will be taxed no matter where they end up.
3.
Mutual funds earn money when investors buy and sell their shares.
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False. Mutual funds earn money when their underlying securities earn money.
4.
Which of the following is not a dividend?
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The sale of a mutual fund share. When individual shareholders sell their shares, these shares are not dividends.
5.
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.
6.
You earn capital gains from your mutual fund shares when you sell them for a profit.
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True. Capital gains result from selling your assets that have risen in value.