Final Answer:
Jarret's principal payments on the loan for the year amount to $1,100.
Step-by-step explanation:
Jarret's interest payments on the loan for the year are $4,900, and he received $3,800 in interest payments from the City of Charleston bonds. To calculate the net interest expense, subtract the interest income from the interest paid on the loan: $4,900 - $3,800 = $1,100. The adjusted basis of the bonds is not directly relevant to the calculation of principal payments. However, it's important to note that the adjusted basis is a key factor in determining capital gains or losses when the bonds are sold.
Jarret's borrowing of $100,000 at 5% interest means he incurs $5,000 in interest expenses on the loan annually (5% of $100,000). However, he only paid $4,900 in interest this year. The $100 difference represents the reduction in the loan principal. This reduction occurs because a portion of his overall payment goes towards repaying the principal amount borrowed.
In summary, Jarret's principal payments on the loan for the year are $1,100. This is calculated by taking the difference between the interest paid on the loan and the interest received from the City of Charleston bonds. The adjusted basis of the bonds is not directly related to the principal payments but plays a role in determining capital gains or losses when the bonds are eventually sold.