What does 'capital gain' refer to?

Capital gain refers to the profit earned from the sale of an asset when the selling price exceeds the original purchase price. This concept is fundamental in personal finance and investment, as it reflects the appreciation of an asset's value over time. Investors benefit from capital gains as they can realize profits when they sell their investments at a higher price than what they initially paid.

Understanding capital gains is crucial because it also comes with tax implications; in many jurisdictions, capital gains are subject to taxation, which can affect an investor's overall returns. This knowledge helps individuals make informed decisions about buying, holding, or selling assets based on potential future valuations compared to their initial costs. Thus, the correct answer encapsulates the essence of capital gains, highlighting their significance in investment strategies and personal finance management.