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Chapter 8: Problem 41

Describe the two ways that investors make money with stock.

Short Answer

Expert verified
Investors make money with stock through capital gains and dividends. Capital gains are the profits made from selling the stock at a higher price than it was purchased. Dividends are a portion of the company's earnings that are distributed to its shareholders.

Step by step solution

01

Understand Capital Gains

The first way that investors make money from stocks is through capital gains. When an investor buys shares of a company, they are essentially buying a piece of that company. If the value of the company increases over time, then the value of the shares owned by the investor also increases. This increase in share value results in a capital gain when the investor sells the shares at a price higher than the purchase price.
02

Understand Dividends

The second way that investors make money from stocks is through dividends. Dividends are a portion of the company's earnings that are distributed to its shareholders. Not all companies offer dividends, but those that do usually distribute them on a regular basis, depending on their profits. When an investor owns shares of a company that offers dividends, they will receive a certain amount of money for each share they own. The total amount of dividends received depends on the number of shares owned and the dividend payout per share.

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