In AP Business, a capital gain is the profit an investor earns by selling a financial asset, such as stock or a bond, for more than its purchase price in the secondary market.
A capital gain is the money you make when you sell a financial asset for more than you paid for it. Buy 100 shares of stock for $2,000, sell them later for $2,500, and that $500 difference is your capital gain.
This matters because investors who provide financial capital to a business get something back for it. Topic 3.5 explains that lenders and investors receive financial assets in exchange for the cash they hand over, and those assets (loans, bonds, and shares of stock) can be resold in a secondary market (EK 3.5.C.1). When the resale price is higher than the original price, the seller pockets a capital gain. It's one of two main ways an investor earns a return, the other being dividends, which are a share of the company's profits.
Capital gain lives in Unit 3: Personal Saving and Borrowing / Business Finance and Accounting, specifically Topic 3.5 Financial Capital. It supports learning objective AP Business 3.5.C, which asks you to describe the benefits and risks to lenders and investors who provide capital to businesses. Investors take on risk because asset prices can fall as easily as they rise. The reward they're chasing is a capital gain plus, sometimes, dividends. Understanding this is how you explain WHY anyone would buy stock or a corporate bond in the first place: they're betting the asset will be worth more later.
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Visual cheatsheet
view galleryDividend (Unit 3)
Dividends and capital gains are the two ways an investor makes money on stock. A dividend is a cash payout from current profits; a capital gain only happens when you sell the share for more than you paid. Some corporations reinvest earnings instead of paying dividends, betting that growth will boost the stock price and hand investors a capital gain instead.
Stock (Unit 3)
Stock is the asset most associated with capital gains. When a company sells shares through equity financing, the buyer becomes a part owner and hopes the share price climbs so they can sell at a profit later in the secondary market.
Bond (Unit 3)
Capital gains aren't just a stock thing. A bond bought in the secondary market for less than its later resale price also produces a capital gain, on top of the interest income the bond pays. This links the lender side of EK 3.5.C.2 to the same profit-from-resale idea.
Expect capital gain to show up in multiple-choice questions about investor returns and the secondary market. A typical stem gives you an investor who buys shares, then the stock price rises (and maybe dividends come in too), and asks you to identify the term for the profit from the price increase. The trap is mixing it up with dividends. To answer cleanly, separate the two income sources: dividends come from profits while you hold the asset, capital gains come from selling the asset at a higher price. No released FRQ has used this term verbatim, but it supports the kind of risk-and-return reasoning that 3.5.C and pitch-evaluation prompts (3.5.D) reward.
A dividend is your share of a company's profits, paid out while you still own the stock. A capital gain is the profit from selling the asset for more than you paid. You can earn a dividend without ever selling; you can only earn a capital gain by selling at a higher price.
A capital gain is the profit you earn when you sell a financial asset for more than you bought it for.
Capital gains and dividends are the two main ways investors earn a return on stock.
Capital gains require selling the asset; dividends are paid out while you still hold it.
Both stocks and bonds resold in the secondary market can produce capital gains (EK 3.5.C.1).
The chance at a capital gain is the reward investors chase in exchange for the risk that prices might fall instead (AP Business 3.5.C).
A capital gain is the profit an investor earns by selling a financial asset, like stock or a bond, for more than its purchase price. If you buy shares for $2,000 and sell for $2,500, your capital gain is $500.
No. A dividend is your share of a company's profits, paid out while you still own the stock. A capital gain only happens when you sell the asset at a higher price than you paid. You can earn one without the other.
The exam tests whether you can separate the two: dividends are income from profits paid to shareholders, while capital gains come from reselling an asset in the secondary market for a higher price. Watch MCQ stems that mention both a rising stock price and dividend payments and ask which term describes the price-increase profit.
Yes. If you buy a corporate bond in the secondary market and later sell it for more than you paid, that price increase is a capital gain, separate from the interest the bond pays you (EK 3.5.C.2).
Investors provide financial capital to businesses hoping the asset's value will rise so they can sell at a profit. The potential capital gain (plus any dividends) is the reward that justifies taking on the risk that prices could fall instead, which is the core of learning objective 3.5.C.
Connect this key term to the AP exam workflow: review the course, practice questions, and check related study tools.