Future Business Leaders of America (FBLA) Personal Finance Practice Test

How can investors make money from purchasing common stock?

1. Dividend payments only

2. Dollar appreciation of stock value only

3. Dividends and dollar appreciation of stock value

4. Interest income and dividends

The correct answer is: Dividends and dollar appreciation of stock value

Investors can make money from purchasing common stock primarily through two main mechanisms: dividends and dollar appreciation of the stock's value. Dividends are payments made by a corporation to its shareholders, typically as a distribution of profits. When a company performs well and generates profits, it may choose to share a portion of those profits with its shareholders in the form of dividends. This provides investors with a direct return on their investment in addition to any potential growth in the stock price. Dollar appreciation refers to the increase in the stock price over time. If an investor buys a stock at a lower price and its value rises, they can sell the stock for a profit. This capital gain represents another way to realize a return on their investment. The combination of receiving dividends and experiencing dollar appreciation means that investors have multiple avenues for generating income from their investment in common stock. Thus, understanding both factors is essential for investors aiming to maximize their returns.