Series 7 Exam Question 127: Answer and Explanation

Question: 127

Declan K. purchased 1,000 shares of UPPP common stock at $40 per share. In the next 11 months, UPPP increased in value to $55 per share. How would this result for Declan be categorized?

• A. Short-term capital gain
• B. Long-term capital gain
• C. Appreciation
• D. Ordinary income

Correct Answer: C

Explanation:

C. Had Declan sold his stock at a profit 11 months later, it would've been a short-term capital gain (1 year or less). Because the question didn't say he sold the stock, it has simply appreciated in value. Remember, there can't be a gain or loss until the security is sold.