Kristi purchased one share of Genuine Co.stock for $200;one year later she sold that share for $400.The inflation rate over the year was 50 percent.The tax rate on nominal capital gains is 50 percent.What was the tax on Kristi's capital gain?

Question

Quizplus · Accepted Answer

The inflation-adjusted basis for the stock is $200/(1+0.5) = $133.33. Kristi's nominal capital gain is $400 - $200 = $200. Her real capital gain is $400 - $133.33 = $266.67.

The tax on her nominal gain is 50% of $200 = $100.

Since her real capital gain is higher than her nominal capital gain, it's possible that her real tax liability would be higher than $100. However, since the question only asks for the tax on her nominal gain, the correct answer is C ($100).

Kristi Purchased One Share of Genuine Co