Canadian Securities Course (CSC) Level 2 Practice Exam

Which asset class is typically involved in generating capital gains according to the portfolio management process?

1. Cash equivalents

2. Fixed income securities

3. Equities

4. Other assets

The correct answer is: Equities

The correct answer is equities, as they are directly associated with capital gains in the context of portfolio management. Capital gains arise from the appreciation in the value of an asset. Equities, or stocks, represent ownership in a company, and their value is influenced by the company's performance, market conditions, and investor sentiment. When the price of a stock increases compared to its purchase price, investors realize a capital gain upon selling. While cash equivalents and fixed income securities may play important roles in a diversified portfolio, they are generally focused on providing stability and income rather than capital appreciation. Cash equivalents are low-risk investments that offer liquidity but minimal returns, and fixed income securities typically provide regular interest payments rather than significant capital gains. Other assets, such as real estate or commodities, can also generate capital gains but are not as universally recognized or as directly correlated with capital appreciation as equities are.