You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the
overall price level. Before taxes were paid, you experienced:_______.
a. both a nominal gain and a real gain, and you paid taxes on the nominal gain.
b. both a nominal gain and a real gain, and you paid taxes only on the real gain.
c. a nominal gain, but no real gain, and you paid no taxes on the transaction.
d. a nominal gain, but no real gain, and you paid taxes on the nominal gain.

Nominal gain: In business, the term "nominal gain" is described as the increase or hike in the price or cost of an asset as per the "federal tax code" and is also denoted as "nominal amount" and is considered as non-adjustable for inflation. However, when a specific product or asset or stock is being sold more than its "actual price" or above its "purchase price" then a gain or profit is noted and hence is taxed.

In the question above, the correct answer is option D.