Question

When a company invests excess cash, it's possible that the company will receive interest income or dividend income from its investment. Which types of investments would pay interest income, and which would pay dividend income?

1) All investments pay interest income
2) Stock investments pay dividend income; bonds and CDs pay interest income
3) Stock investments could pay interest or dividend income
4) Bonds pay dividend income in some cases

Answer 1

Stock investments pay dividend income, while bonds and CDs pay interest income.

Step-by-step explanation:

When a company invests excess cash, it can receive interest income or dividend income from its investments. Stock investments typically pay dividend income, which is a portion of the company's profits distributed to its shareholders. On the other hand, bonds and CDs typically pay interest income, which is a fixed payment made to the bondholder or CD holder.

For example, if you invest in a stock like Coca-Cola, you may receive dividend income from the company's profits. However, if you invest in a bond or a certificate of deposit (CD), you would earn interest income on your investment.