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1.
When are taxes on an investment's capital gains due?
In the year that the investment is sold. Although gains may occur, no tax is due until the investment is sold. This may or may not occur at one's retirement age.
2.
Why is an economic moat important for a dividend-paying firm?
Both of the above. Moats are critical both for the sustainability of a dividend and for its growth potential.
3.
Which of the following is not a benefit of a DRIP?
It pays double the regular dividend. DRIPs encourage long-term investing, and because the dividends are reinvesting regularly, investors may benefit from dollar-cost averaging. However, DRIPs respect the existing dividend rates.
4.
What ultimately drives price appreciation of stocks?
Anticipated dividends. Ultimately, what causes stock prices to go up is the anticipation of dividend payouts, even if investors understand that there will not be dividends for many years.
5.
With a dividend reinvestment plan (DRIP) for stocks, what happens to reinvested dividends?
They purchase additional shares of stock for you. DRIPs will actually buy additional shares for you; this is a way of investing on autopilot.
