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
Answer Explanation:
An equity investment refers to the purchase of shares or ownership stakes in a company. When an investor buys equity, they essentially buy a small portion of that company.
Investors make money from equity investments mainly in two ways: capital gains (selling the asset for a profit) and dividends (earnings paid to shareholders). However, the primary method is by selling the shares at a price higher than what they originally paid.