What does ‘capital gain’ refer to?

Capital gain refers specifically to the profit that an investor realizes when they sell an asset for a higher price than the purchase price. This concept is fundamental in investment contexts, especially related to stocks, real estate, or other tangible assets. For instance, if an individual buys a stock for $50 and later sells it for $70, the capital gain is $20.

This metric is significant because it reflects the increased value of the asset acquired over time. Capital gains can be short-term, applying to assets held for a year or less, or long-term for those held longer, which often have different tax implications. Understanding capital gains is essential for investors as it directly relates to the profitability of their investment strategies.

The other options either describe losses, earnings derived from other sources like dividends or salaries, which do not align with the definition of capital gain. Thus, understanding capital gains is crucial for evaluating the overall performance of investments.