Which of the following best defines a capital gain?

• A. The increase in stock price over time
• B. Profit from selling an investment above its purchase price
• C. Income received from dividends
• D. Final value of a traded commodity

Answer: (B)

A capital gain is accurately defined as the profit that results from selling an investment for more than its initial purchase price. This concept is fundamental in trading and investing, as it reflects the financial success of an investment strategy. When an investor buys a stock at a certain price and sells it at a higher price, the difference constitutes a capital gain, which is often subject to taxation depending on the holding period and local tax laws.

The other definitions in the options do not capture the essence of a capital gain accurately. While the increase in stock price over time can imply potential capital gains, it does not specify the need for a transaction to realize that gain. Income from dividends refers to the cash flows received from owning shares, which is distinct from capital gains. The final value of a traded commodity provides a price point but doesn't address the profit aspect or the necessary comparison with the initial purchase price that defines a capital gain.