At the beginning of his current tax year, David invests $11,930 in original issue U. S. Treasury bonds with a $10,000 face value that mature in exactly 15 years. David receives $940 in interest ($470 every six months) from the Treasury bonds during the current year, and the yield to maturity on the bonds is 7.4 percent. How much interest income will he report this year if he elects to amortize the bond premium?

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Arianna Kramer

9 September, 02:54

At the beginning of his current tax year, David invests $11,930 in original issue U. S. Treasury bonds with a $10,000 face value that mature in exactly 15 years. David receives $940 in interest ($470 every six months) from the Treasury bonds during the current year, and the yield to maturity on the bonds is 7.4 percent. How much interest income will he report this year if he elects to amortize the bond premium?

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Misty · Answer 1

interest income for the year 1,474.82

Explanation:

the interest income will be the carrying value of the bond times the market rate that is:

$11,930 x 7.4% = 19,930 x 0.074 = 1,474.82‬

the difrence beween this value and the actual cash procceds of 940 will be the amortization on the bonds.