Sources of Income

Question 8 • SHS Alt Personal Finance - 2021

Earned income and capital gains (or "portfolio income") are acquired in different ways. Which statement describes how they are different?

Answer

Earned income and capital gains are both based on the number of hours you work.

Earned income is payment for employment, while capital gains are produced by your investments.

Capital gains are received if you manage the company, but earned income is received if you are an employee of the company.

Earned income is when you make the investment directly, but capital gains are when someone else has managed your investments.

Explanation

Earned income is money you receive for working, such as wages or a salary. Capital gains are profits made when an investment increases in value and is sold. Therefore, choice B correctly distinguishes employment income from income produced by investments.

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