Serena purchased 10 shares of GLC, Inc. stock for $200 per share; one year later she sold the 10 shares for $220 a share. Over the year, the price level increased from 135.0 to 143.1. The tax rate on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Serena pay on her gain?

Question

Quizplus · Accepted Answer

The nominal gain is the difference between the selling price and the purchase price, which is ($220 - $200) × 10 = $200.
The inflation gain is the difference between the selling price adjusted for inflation and the purchase price adjusted for inflation, which is (($220 ÷ 143.1) × 135) - (($200 ÷ 135) × 135) = $14.67.
The taxable gain is the nominal gain minus the inflation gain, which is $200 - $14.67 = $185.33.
The tax on the gain is 50% of the taxable gain, which is $92.67.
Therefore, the correct answer is C) $100 (nearest dollar).

Serena Purchased 10 Shares of GLC, Inc