Harvey,a U.S.taxpayer,purchased 10 shares of MVC stock for $100 per share;one year later he sold the 10 shares for $130 a share.Over the year,the price level increased from 140.0 to 147.0.What is Harvey's before-tax real capital gain?
A)$1,300 - $1,000(1.05)and this is the gain he is to report on his income tax
B)$1,300 - $1,000(1.05)but he is to report a $300 gain on his income tax
C)$1,300 - $1,000(1.07)and this is the gain he is to report on his income tax
D)$1,300 - $1,000(1.07)but he is to report a $300 gain on his income tax

Question

Quizplus · Accepted Answer

Harvey's nominal gain is $300 ($1,300 - $1,000). The price level increased by 5% (147/140), so the real gain is $1,300 - $1,000(1.05). However, for tax purposes, he reports the nominal gain of $300.