Question

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

a) $50

b) $75

c) $100

d) $200

Answer 1

Answer:

The tax on Kaitlyn's capital gain was $100

Explanation:

In order to calculate the tax on Kaitlyn's capital gain we would have to calculate first the Nominal capital gain as follows:

nominal capital gain=$400 - $200

nominal capital gain= $200

Therefore,  tax on Kaitlyn's capital gain= tax percentage×nominal capital gain

                                                                =50%×$200

                                                                =$100

The tax on Kaitlyn's capital gain was $100