Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which term refers to the increase in an asset's market price?

1. Yield

2. Capital appreciation

3. Income

4. Return on investment

The correct answer is: Capital appreciation

The term that refers to the increase in an asset's market price is capital appreciation. This occurs when the value of an asset—such as stocks, real estate, or other investments—rises over time, leading to a profitable sale if the asset is disposed of at that higher price. Capital appreciation is a key concept in investing, as it represents the potential for growth in wealth. Investors typically seek assets that are expected to appreciate over time, as this growth in value can significantly enhance their overall financial portfolios. In contrast, yield refers to the income generated from an investment, usually in the form of dividends or interest, rather than the increase in market price. Income is also associated with cash flow earned from an investment, but it does not capture changes in the asset's market value. Return on investment is a broader measure that encompasses both income and capital appreciation, but it is not specifically focused on the increase in the asset’s market price alone. Thus, capital appreciation accurately isolates the concept of value increase in the context of asset pricing.