Basics Beginner: Investment Earnings

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1.
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.
2.
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).
3.
Imagine that a share of your Fund X rises from 20 dollars per share to 30 dollars per share. How much of a capital gain have you made on it?
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10 dollars, but only if you have sold it. Until they have been sold, shares that rise in price will only be profits on paper.
4.
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.
5.
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.