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fredd [130]
2 years ago
5

"In 2020, a customer buys a 3% U.S. Government bond maturing in 2024 at 102. The customer elects to amortize the bond premium fo

r tax purposes. If the bond is sold after 2 years, its cost basis at that time is:"
Business
1 answer:
Talja [164]2 years ago
7 0

Answer: A. 101

Explanation:

Amortization is done on the premium of the bond if elected to be done by the owner.

Bonds at par are worth 100 so a 102 bond has a premium of 2.

If amortized, this premium will have to be amortized over the period till maturity which in this case is 4 years.

Amortization per year = 2 points / 4 years

= 0.5

In 2 years the amortization would therefore be 1 point.

Cost basis of Bond = 102 - 1

= 101

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