Which term describes the change in asset value relative to its purchase price?

Which term describes the change in asset value relative to its purchase price?

• A. Capital Asset
• B. Capital Gain and Loss
• C. Dividends
• D. Capital Appreciation and Depreciation

Answer: (D)

The change in value of an asset relative to what you paid is described as capital appreciation and depreciation. Appreciation happens when the asset’s market value rises above your purchase price, increasing your net worth on paper. Depreciation occurs when the market value falls below your purchase price, reducing that value. This term covers both directions of value movement, which is exactly what is meant by the asset’s value relative to its purchase price. Dividends are payments you receive from owning some investments, not the change in value. A capital asset just refers to the type of asset, not how its value changes. Capital gains and losses describe the profit or loss realized when you actually sell the asset, which is related but reflects a realized outcome rather than the ongoing value change while you hold it.

The change in value of an asset relative to what you paid is described as capital appreciation and depreciation. Appreciation happens when the asset’s market value rises above your purchase price, increasing your net worth on paper. Depreciation occurs when the market value falls below your purchase price, reducing that value. This term covers both directions of value movement, which is exactly what is meant by the asset’s value relative to its purchase price.

Dividends are payments you receive from owning some investments, not the change in value. A capital asset just refers to the type of asset, not how its value changes. Capital gains and losses describe the profit or loss realized when you actually sell the asset, which is related but reflects a realized outcome rather than the ongoing value change while you hold it.