Question

When you were born, a family friend gave you a certificate for 10 shares of stock in the XYZ Computer Company that was worth $200. Since your birth, the value of the XYZ Computer Company has increased and your stock is now worth $500. If you sell your stock now, you will profit $300. The $300 profit is referred to as which type of income:

a) earned income.
b) unearned income.
c) retirement income.
d) deferred income.

I'm guessing it's either A or B but I'm not sure because I'm an idiot :).

Answer 1

B. Unearned income. Unearned income is money that you receive for which you did not perform any activity or work before receipt. This income is sometimes called "passive income." You received a stock certificate at birth and you did not perform any task or work related to the stock certificate to make it appreciate, or grow, in value. 

Answer 2

The correct answer is B, Unearned Income.

As the name suggests, Unearned income is defined as an income which is not earned by doing work. This income is not generated by giving your performance or capabilities at some workplace. Rather this is an income which is earned just with the passage of time.

Like in this example, 10 shares of XYZ Computer Company was bought at the time of your birth for $200 and now they are of worth $500. It means with the passage of time, the value of the stock increases that generated a profit of $300. This is classified as unearned income.