Question Categories IA Lump Sum Funds Lump Sum IB Lump Sum Funds Ordinary Level
ID: 3183883 • Letter: Q
Question
Question Categories
IA Lump Sum Funds Lump Sum
IB Lump Sum Funds Ordinary Level Annuity
IC Lump sum “funds” delayed level annuity.
ID Ordinary Level Annuity “funds” lump sum.
IE Ordinary Level Annuity “funds” delayed level annuity.
IF Delayed Level Annuity “funds” delayed level annuity.
IIA1 Bond Standard
IIA2 Bond Perpetuity
IIB1 Stock Constant Dividend
IIB2 Stock Constant Dividend Growth
IIB3 Stock Supernormal Growth
IIIA Current rate
IIIB YTM
IIIC Capital Gain/Los
IIID Dividend Yield
IIIE Internal Rate of Return (IRR)
IV Alternatives
V Components of Interest (discount) Rates
VI Real vs. Nominal
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2) Any asset has the potential to provide return to its owner from income and capital gains/loss.
What is the "income portion" of return from owning a stock called?
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This type of question falls under the category of [a]
Explanation / Answer
When you buy a share you buy a piece of that company. Matured and established companies pay dividend which is basically a percentage of company’ profit. But it is not mandatory for them to pay dividends, it depends entirely on company’s decision.
The other way of earning is through selling stocks once the price of shares you own has gone up. There are millions of people buying and selling stock. Perceived value of company changes over time and hence its share price keeps fluctuating.
Dividend yield is the right option. It is defined as annual dividend per share divided by price per share.
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