Investment income is the money you earn from your investments. It can come from various sources, including:
1. Interest Income
- Definition: Interest income is the money you earn from lending money to others, such as through savings accounts, bonds, or certificates of deposit (CDs).
- Calculation: Interest income is typically calculated based on the principal amount invested, the interest rate, and the time period.
- Example: If you invest $1,000 in a savings account with a 2% annual interest rate, you will earn $20 in interest income after one year.
2. Dividend Income
- Definition: Dividend income is the portion of a company's profits that is distributed to its shareholders.
- Calculation: Dividend income is typically calculated based on the number of shares you own and the dividend per share declared by the company.
- Example: If you own 100 shares of a company that pays a $1 dividend per share, you will receive $100 in dividend income.
3. Capital Gains
- Definition: Capital gains are the profits you make from selling an investment for more than you paid for it.
- Calculation: Capital gains are calculated by subtracting the purchase price from the selling price.
- Example: If you buy a stock for $50 and sell it for $75, you will have a capital gain of $25.
4. Rental Income
- Definition: Rental income is the money you earn from renting out property, such as an apartment, house, or commercial building.
- Calculation: Rental income is typically calculated based on the monthly rent and the number of months the property is rented.
- Example: If you rent out an apartment for $1,000 per month, you will earn $12,000 in rental income per year.
5. Royalties
- Definition: Royalties are payments you receive for the use of your intellectual property, such as patents, trademarks, or copyrights.
- Calculation: Royalty payments can be calculated based on a fixed amount, a percentage of sales, or a combination of both.
- Example: If you license a patent to a company and they agree to pay you a 5% royalty on their sales, you will receive 5% of their sales revenue as royalty income.
To solve for investment income, you need to identify the sources of your income and calculate the amount earned from each source. You can use the formulas and examples provided above to help you calculate your investment income.
