Canadian Securities Course (CSC) Level 1 Practice Exam

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What is capital appreciation and how does it affect common shares?

Increase in the value of liabilities, leading to a decrease in common shares
Increase in the value of a company's assets, leading to an increase in common shares
Decrease in the value of a company's assets, leading to an increase in common shares
Decrease in the market value of common shares

The correct answer is: Increase in the value of a company's assets, leading to an increase in common shares

Capital appreciation refers to an increase in the value of a company's assets, such as stocks or real estate, over time. In the context of common shares, capital appreciation means that the value of the shares has increased. This leads to an increase in the price of the common shares, benefiting the shareholders who hold them. Therefore, the correct answer is B. Option A, which states an increase in the value of liabilities leading to a decrease in common shares, is incorrect as liabilities are not directly related to capital appreciation. Option C, which mentions a decrease in the value of a company's assets leading to an increase in common shares, is inaccurate because a decrease in asset value would typically lead to a decrease in share price. Option D, stating a decrease in the market value of common shares, is incorrect because capital appreciation specifically refers to an increase in value, not a decrease.