Celine purchased 5,000 shares of stock for $500,000. A year later the stock is valued at $650,000. Instead of selling the stock, Celine held onto it for another year. Which of the following is true?
A) The $150,000 increase in the value of the stock represents a dividend.
B) The $150,000 increase in the value of the stock represents an unrealized capital gain.
C) To determine the capital gain, it is first necessary to know the normal rate of return on capital.
D) The total capital gain will be at least $150,000.

Question

Quizplus · Accepted Answer

The $150,000 increase in the value of the stock represents an unrealized capital gain, as Celine has not yet sold the stock. The capital gain will only be realized when the stock is sold. The normal rate of return on capital is not relevant to determining the capital gain in this scenario, and there is no indication that a dividend was paid. While the total capital gain may be greater than $150,000 if the value of the stock continues to increase, we cannot determine that from the information given.

Celine Purchased 5,000 Shares of Stock for $500,000