Practice Quiz

FINRA Series 6

Category - Series 6

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Fidelity Investments has two money market funds that is available to most investors. The Fidelity Cash Reserves fund (FDRXX) is currently yielding 0.10% while its Fidelity Municipal Money Market fund (FTEXX) is yielding 0.01%. One reason for this significant difference is that:
  1. the Municipal Money Market fund pays interest that is free from state and local taxes.
  2. the Municipal Money Market fund pays interest that is free from federal taxes.
  3. interest earned on the Cash Reserves fund is subject to the alternative minimum tax.
  4. the Municipal Money Market fund is insured by the FDIC, and this is not true of the Cash Reserves fund.
Explanation
Answer: B - One reason for the significant difference between the returns on Fidelity’s Cash Reserves fund and its Municipal Money Market fund is that the Municipal Money Market fund pays interest that is free from federal taxes. The interest earned is not necessarily free from state and local taxes, and the Municipal Money Market fund is not insured by the FDIC.
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