Trent bought a parcel of land for $20 000 in 1960 when the price index was 100;he sold it in 2013,when the price index was 600,for $100 000.If Trent must pay 20 percent of any capital gain in taxes,what is his after-tax real capital gain (in 2013 dollars)?

Question

Trent bought a parcel of land for $20 000 in 1960 when the price index was 100;he sold it in 2013,when the price index was 600,for $100 000.If Trent must pay 20 percent of any capital gain in taxes,what is his after-tax real capital gain (in 2013 dollars)?

Quizplus · Accepted Answer

The price index in 2013 compared to 1960 is 600/100 = 6. 
The initial cost of the land in 2013 dollars is:

$20 000 x 6 = $120 000

Therefore, Trent's capital gain was:

$100 000 - $120 000 = -$20 000 (a loss)

Since he did not make a profit, there is no tax to pay.

His after-tax real capital gain is also -$20 000.

Therefore, answer B is correct.

Trent Bought a Parcel of Land for $20 000 in 1960