Practice Quiz

FINRA Series 7

Category - Series 7

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Reinvestment of dividends and distributions from investment company shares:
  1. results in compounding of shares, which can be an important factor for investment growth
  2. permits deferment of all federal income taxes on dividends and distributions until the investment is liquidated
  3. makes possible the purchase of fund shares at a price below net asset value
  4. all of the above
Explanation
Answer: A - results in compounding of shares, which can be an important factor for investment growth. Reinvesting dividends and capital gains increases the number of shares owned. Occasionally, these programs permit purchases at net asset value, but never below that price. Shareholders do not avoid current tax liability on the amount of dividends and capital gains reinvested.
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