What is a capital gain?

A capital gain refers to the appreciation in value of an asset or investment over time, which is realized when that asset is sold. When an investor purchases an asset, such as stocks, bonds, or real estate, they hope that the value will increase beyond the initial purchase price. When the asset is sold for a higher price than it was bought, the difference represents a capital gain. This concept is fundamental in investment evaluations, as it directly affects an investor's returns.

The correct answer captures the essence of capital gains by emphasizing both the increase in value and the point of realization, which occurs at the time of the sale. Recognizing capital gains is essential for assessing overall investment performance and for understanding the tax implications associated with selling assets at a profit.