Which of the following types of investments typically generate interest income?

• A. Preferred stocks
• B. Common stocks
• C. Corporate bonds
• D. Savings accounts

Answer: (D)

Verified step by step guidance

1. Understand the concept of interest income: Interest income is the earnings generated from investments that pay interest, such as bonds, savings accounts, or other fixed-income securities. It is distinct from dividend income, which is earned from stocks.
2. Analyze the investment types provided: Preferred stocks and common stocks typically generate dividend income, not interest income. Dividends are payments made by companies to shareholders from their profits.
3. Focus on corporate bonds: Corporate bonds are debt securities issued by companies to raise capital. Investors who purchase these bonds earn interest income, as the company pays periodic interest (coupon payments) to bondholders.
4. Consider savings accounts: Savings accounts are deposit accounts held at financial institutions that pay interest on the balance maintained in the account. This interest income is typically calculated based on the account's annual percentage yield (APY).
5. Conclude that corporate bonds and savings accounts are the correct answers: Both corporate bonds and savings accounts generate interest income, as they involve payments based on a fixed interest rate or yield.