Study Question of the Month – September

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 65, and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

 Study Question

Question (Relevant to the Series 6Series 7Series 62, Series 65, and Series 66): 

Your client owns stock mutual funds in an account with automatic reinvestment of dividends and capital gains. What happens to the value of his account on ex-dividend dates?

Answers:

A. The value of the account shrinks by the amount of the distribution

B. The value of the account grows by the amount of the distribution, and it is a taxable event for him

C. The value of the account remains unchanged, and it is a taxable event for him

D. The value of the account remains unchanged, and it is not a taxable event for him

Correct Answer: C. The value of the account remains unchanged, and it is a taxable event for him

Rationale: Upon distribution and reinvestment of dividends or capital gains, the client ends up with more shares, and each share is worth slightly less. The value of the account is unchanged. The mutual fund company reports these distributions annually to the IRS, and they are treated as taxable income.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

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