Which of the following statements concerning automatic reinv

Which of the following statements concerning automatic reinvestment of dividends and capital gains is correct? I Reinvestment of capital gains is a taxable transaction and reduces the investment efficiency of a mutual fund investment II Reinvestment of dividends and capital gains reduces the effect of compounding III Investors can elect to reinvest all distributions or none IV Reinvestment of dividends causes tax on the dividends to be deferred until the shares are sold

A) I and III

B) I and IV

C) II and III

D) II and IV

Solution

Which of the following statements concerning automatic reinvestment of dividends and capital gains is correct? I Reinvestment of capital gains is a taxable transaction and reduces the investment efficiency of a mutual fund investment II Reinvestment of dividends and capital gains reduces the effect of compounding III Investors can elect to reinvest all distributions or none IV Reinvestment of dividends causes tax on the dividends to be deferred until the shares are sold

B) I and IV