A Problem with Taxation of Mutual Funds Is

question 17

Multiple Choice

A problem with taxation of mutual funds is

• A) Professional management.
• B) The possibility to eliminate taxes if held in a Roth individual retirement account.
• C) Being required to report reinvested income dividends and capital gain distributions on your federal tax return as current income.
• D) Tax deferral if the fund is held in a retirement account like a 401(k) account.
• E) The diversification offered to investors.

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Definitions:

Efficient Frontier

A graphical representation in portfolio management that shows the best possible investment portfolios that offer the highest expected return for a given level of risk.

Risky Assets

Assets that have a higher degree of uncertainty in their returns, often with the potential for higher gains but also higher losses.

Minimum-variance Portfolio

An investment portfolio designed to have the lowest possible risk (variance) for its expected return.

Global Minimum Variance Portfolio

An investment portfolio strategy that seeks to minimize volatility by allocating assets in a way that produces the lowest possible variance.