Series 7 Exam Question 369: Answer and Explanation

Question: 369

If your customer, William Goate, purchases shares in a municipal bond fund, which of the following statements is TRUE?

• A. Dividends are subject to alternative minimum tax.
• B. Dividends are taxable to all investors.
• C. Capital gains distributions are taxable.
• D. Capital gains distributions are not taxable.

Correct Answer: C

Explanation:

C. Dividends that are distributed by municipal bond funds are federally tax-free, but any capital gain distribution is taxable. Choice (C) is the right answer.