Basics Beginner: Investment Earnings

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1.
Mutual fund dividends are passed to investors from ______.
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The earnings of the securities in a fund. The fund passes earnings from its portfolio in the form of dividends to its shareholders.
2.
What is your one-year return on investment if you buy a stock for $50, receive a dividend of $3, and sell it for $55?
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16 percent.
3.
Which of the following choices is not a way that earnings are paid to bondholders?
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Dividends. Dividends are paid to stockholders but not to bondholders.
4.
Zero coupon bonds pay out all of their earnings in the form of capital gains.
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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.
5.
All investment earnings are taxed the same way.
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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).