Asked by Neisha Dressler on Apr 25, 2024
Verified
You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced
A) both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B) both a nominal gain and a real gain, and you paid taxes only on the real gain.
C) a nominal gain, but no real gain, and you paid taxes on the nominal gain.
D) a nominal gain, but no real gain, and you paid no taxes on the transaction.
Nominal Gain
The increase in the monetary value of an asset or investment without adjusting for inflation, representing a simple difference in price.
Real Gain
The increase in value or profit after adjusting for inflation or other external factors that affect purchasing power.
Price Level
The overall level of prices of goods and services in an economy at a given time, often measured by a price index.
- Gain insight into how inflation affects nominal and real earnings from investments.
Verified Answer
DA
Desty Ayomi7 days ago
Final Answer :
C
Explanation :
The price per share increased by 5 percent, which is a nominal gain. However, because the price level (inflation) also increased by 5 percent, your purchasing power remained the same, indicating no real gain. Taxes are typically paid on nominal gains, not on the adjusted real gains.
Learning Objectives
- Gain insight into how inflation affects nominal and real earnings from investments.