Ami purchased 100 shares of stock for $10,000.A year later the stock is valued at $18,000.Instead of selling the stock,Ami held onto it for another year.Which of the following is TRUE?
A)The $8,000 increase in the value of the stock represents an unrealized capital gain.
B)The $8,000 increase in the value of the stock represents a dividend.
C)To determine the capital gain,it is first necessary to know the normal rate of return on capital.
D)none of the above

Question

Quizplus · Accepted Answer

The increase in the value of the stock from $10,000 to $18,000 represents an unrealized capital gain because Ami has not yet sold the stock to realize the gain. It only becomes a realized capital gain when the stock is sold. B is incorrect because dividends are a distribution of a company's earnings to its shareholders and not related to the increase in stock value. C is incorrect because the normal rate of return on capital is not relevant in determining the capital gain.

Ami Purchased 100 Shares of Stock for $10,000