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1.
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).
2.
If you have a capital gain (that is, earn a profit) on an investment that you held for three years, it will be considered a _______.
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Long-term capital gain. Investments that are held for longer than a year and then sold for a profit will earn long-term capital gains.
3.
What are a security's increases in value called after they are sold?
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Capital gains. They are capital gains after they are sold, but paper profit while they are still held.
4.
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.
5.
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.