Basics Beginner: Investment Earnings

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Companies that pay dividends do not by nature generate capital gains.
Choose wisely. There is only one correct answer.
False. Stocks can both pay dividends and appreciate in value, which can produce capital gains upon their sale. Good dividends can attract additional buyers, which results in appreciation of a stock's value.
2.
Zero coupon bonds pay out all of their earnings in the form of capital gains.
Choose wisely. There is only one correct answer.
False. Zero coupon bonds do not make interest payments or coupon payments; however, their gain in value to maturity and par value is considered accrued interest.
3.
All investment earnings are taxed the same way.
Choose wisely. There is only one correct answer.
False. Long-term capital gains are usually taxed at a lower rate than other forms of income, and most municipal bonds' interest payments are tax-exempt (tax-free).
4.
Which of the following choices is not a way that earnings are paid to bondholders?
Choose wisely. There is only one correct answer.
Dividends. Dividends are paid to stockholders but not to bondholders.
5.
Mutual fund dividends are passed to investors from ______.
Choose wisely. There is only one correct answer.
The earnings of the securities in a fund. The fund passes earnings from its portfolio in the form of dividends to its shareholders.