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The Ultimate Tax Free Mutual Funds Quiz
by Staff
Tax-free mutual funds are one of the most popular types of investments. Rather than invest only your money, you can benefit from power in numbers while saving on taxes. Are these mutual funds the right choice for you? Take our quiz to find out what you know about investing in tax-free mutual funds.

Which of these best describes the advantage of investing in a mutual fund?

  • more purchasing power with less risk
  • lower taxes
  • better stocks

Approximately what percentage of American investors own shares of mutual funds?

  • 40 percent
  • 60 percent
  • 80 percent

Which of these statements best defines diversification?

  • Diversification is when you invest your money in one new stock each financial quarter.
  • Diversification is when you invest your money in numerous stocks and other investments.
  • Diversification is when you invest different amounts of money each time you buy a stock.

When did the idea of an investment trust with pooled funds first appear in the United States?

  • the 1700s
  • the 1890s
  • the 1950s

Which of these statements best defines liquidity?

  • Liquidity is an investment in oil or other liquid commodity.
  • Liquidity measures how easily and affordably you can convert an investment into cash.
  • Liquidity refers to the amount of money an investor has in the bank.

One of the drawbacks of investing in a tax-free mutual fund is which of these concerns.

  • Mutual funds have lower returns than some other investments.
  • Mutual funds are more expensive than other investments.
  • Mutual funds require a long term commitment.

Approximately how many mutual funds are there in the United States?

  • 3000
  • 6000
  • 8000

Which type of mutual funds are tax-free?

  • Only funds that invest in tax-exempt municipal bonds are tax-free.
  • All mutual funds are tax-free.
  • A mutual funds is tax-free if its total value does not exceed $3 billion.

What type of an investment is a bond?

  • a loan to an organization
  • a set amount of gold
  • an investment in the profit margin of a company

Which of these organizations might issue a municipal bond?

  • the Department of Homeland Security
  • a public water treatment facility
  • ENRON

Municipal bonds account for what percentage of mutual fund bond assets?

  • around 5 percent
  • around 25 percent
  • around 40 percent

Why is the liquidity of a bond fund greater than that of an individual bond?

  • You can cash out your shares in a bond fund at any time, because you're not tied down to a particular bond.
  • You can cash out your shares of a bond fund after only three months, rather than waiting the required 18 months.
  • You can cash out your shares of a bond fund without paying any capital gains tax.

Who guarantees your investment when you purchase municipal bonds?

  • the Federal Government
  • the government that issued the bond
  • the New York Stock Exchange

Even though they are called tax-free mutual funds, you might have to pay which of these taxes on the income you earn from them?

  • a value added tax
  • a sin tax
  • a capital gains tax

Which of these terms refers to a detailed description of a mutual fund's history and activities?

  • a Fund Liquidity Usage and Finance report
  • a prospectus
  • an IRS 1717-w form