Which Best Describes How an Investor Makes Money from an Equity Investment?

Which best describes how an investor makes money from an equity investment?

A. By earning interest
 

B. By selling the asset for a profit
 

C. By raising capital
 

D. By growing the asset
 

Correct Answer: B. By selling the asset for a profit
 

Explanation: An equity investment earns an investor money mainly by selling the asset for a gain. Equity investments, like shares, account for partial ownership of an enterprise. Over time and as the enterprise increases in value, the price of the stock can appreciate. Investors who bought the stock at a lower price then resell it for a greater price and realize a gain in capital. Some equity investments can also give dividend payments, which are regular payments out of the profits of the enterprise to the owners of the business. But the primary way of earning from an equity investment is a gain in value.
 

Which statement best describes how an investor makes money off debt? 

An individual is paid from debt in the form of interest. Debt investments, such as loans or bonds, entail lending an amount of money (to a corporation or government) in exchange for periodic payments of interest and the amount of the loan when the term ends. This is different from equity, where the payout is based on the appreciation in the value of the asset.