Basics Beginner: Investment Earnings

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1.
What would be your return on investment if you bought a $1,000 bond that had an 8 percent annual coupon rate and you sold the bond one year later for $950?
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3 percent.
2.
Companies that pay dividends do not by nature generate capital gains.
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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.
3.
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).
4.
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.
5.
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.