Question

Paying a premium of $10 per bond, Ms. Tracey Pringle bought 10 municipal bonds with 20 years to maturity. Ten years later, she sold the bonds for 103. For tax purposes, she has a:___________A) $300 loss.B) $250 gain.C) $200 loss.D) $200 gain.

Answer 1

Answer:

B) $250 gain.

Explanation:

The cost per bond is $1,010.

The amortization amount each year is 10/20 years =  $0.50 per year. $0.50 per year × 10 years = $5 per bond.

After 10 years, the adjusted cost basis is $1,005 per bond.

She sells the bonds for $1,030 per bond. $1,030 − $1,005 = $25 per bond

25 × 10 = $250 gain.