Question

At the beginning of his current tax year, David invests $11,700 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 10 years. David receives $560 in interest ($280 every six months) from the Treasury bonds during the current year, and the yield to maturity on the bonds is 3.6 percent. (Round your intermediate calculations to the nearest whole dollar amount.) How much interest income will he report this year if he elects to amortize the bond premium

Answer 1

$419.95

Step-by-step explanation:

The computation of the interest income reported is shown below

Year Adjusted basis Interest received Premium Reported

Amortization Interest

1 $11,700 $280 $69.40 $210.60

($280 - $210.60) ($11,700 × 3.6% × 6 ÷ 12 )

2. $11,630.60 $280 $70.65 $209.35

($11,700 - $69.40) ($280 - $209.35) ($11,630.60 × 3.6% × 6 ÷ 12 )

Total $419.95