Question

With regard to mutual funds and variable annuities, all of the following are TRUE statements EXCEPT: (A) Both are subject to market risk (B) Both are long-term investments (C) Both have tax deferred earnings (D) Both generally provide active professional investment management

Answer 1

The false statement among the options given is (C) Both have tax deferred earnings, because while variable annuities have tax-deferred earnings, mutual funds do not unless they are held in a tax-advantaged retirement account.

Step-by-step explanation:

The question pertains to the comparison between mutual funds and variable annuities, and identifying which of the provided statements is false. Assessing the given options:

• (A) Both are subject to market risk: This is true. Both mutual funds and variable annuities are tied to market performance and thus can fluctuate in value.
• (B) Both are long-term investments: Generally true. These are typically designed for long-term financial goals.
• (C) Both have tax deferred earnings: This statement is only partially true. Mutual funds do not necessarily have tax-deferred earnings; they generally produce capital gains and dividends which can be taxable in the year they are distributed unless held in a tax-advantaged account like an IRA. On the other hand, variable annuities do offer tax-deferred earnings.
• (D) Both generally provide active professional investment management: True. Both types of investments are usually managed by professionals.

Therefore, the correct answer is (C) Both have tax deferred earnings as the statement that is FALSE, because only variable annuities typically offer tax deferral on earnings while mutual funds do not, unless held within a tax-advantaged retirement account.

Answer 2

Answer: (C) Both have tax deferred earnings

Step-by-step explanation:

The mutual funds and the variable annuities are both considered as the long term investment in the market and both are liable to the market chance. In the variable annuities, the mutual funds earnings are not basically tex deffered.

Although the variable annuity and funds are the also considered as the index funds and also provide the portfolio management which are active. Not one or the other "go through" increases and loss for the tax purposes.

Therefore, All the options are true regarding the mutual funds and the variable annuities except option (C).