General Securities Representative (Series 7) 2025 – 400 Free Practice Questions to Pass the Exam

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What does the term "capital gain" refer to?

Income earned through interest on investments

Profit from the sale of an asset when its selling price exceeds its purchase price

The term "capital gain" specifically refers to the profit that is realized when an asset is sold for a price that is higher than its purchase price. This occurs in various types of investments, such as stocks, bonds, real estate, or other assets. The crucial aspect of a capital gain is the difference between the selling price and the original purchase price, highlighting the gain in value that has occurred over the time the asset was held.

For instance, if an investor buys shares of stock for $50 and later sells them for $75, the capital gain is $25. This concept is fundamental in investment and taxation contexts, as capital gains may be subject to taxes, depending on the length of time the asset was held—short-term versus long-term capital gains typically have different tax rates.

Understanding capital gains is essential for investors when evaluating the performance of their investments and making future investment decisions.

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Loss incurred when an investment loses value

Fees charged by brokers for facilitating trades

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