Question

A customer buys 10M of $1,000 par corporate bonds in the secondary market. The purchase confirmation shows that the customer paid 90 + $150 of accrued interest. Six months later, the customer sells the bonds in the market at 91 + $50 of accrued interest. The capital gain or loss is:

Answer 1

The multiple choices are:

A. $0

B. $100 capital gain

C. $100 capital loss

D. $200 capital gain

The correct option is B,$100 capital gain

Step-by-step explanation:

The capital gain is the amount received from the sale of the bonds minus the amount paid for acquiring the bonds without the including the accrued interest as that is not related to capital gain,capital gain only deals with the movement in price of the bonds

Amount paid for bonds acquisition=10*90%*$1000=$9000

Amount received from bonds disposal=10*91%*$1000=$9100

amount of capital gain=$9,100-$9,000=$100

The amount of capital gain is $100,which is option B