Series 7  General Securities Representative Exam
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Jackson purchased a 6 percent XYZ corporate bond at 70 with 5 years to maturity. 4 years later, Jackson sold the bond at 95. What is the gain or loss?
$500 Capital Gain
A
$250 Capital Gain
B
$50 Capital Loss
C
$50 Capital Gain
D
Explanations
The bond was purchased at $700 (70% of $1,000 par) and matures at $1,000 par in 5 years. To solve, take the $300 difference and divide it by the 5 years to maturity. $300 divided by 5 Years = $60. This is the per year accretion. Next add the TOTAL accretion to the purchase price of the bond. $60 per year x 5 years = $300 total accretion. Then, you add the total accretion to the purchase price of the bond. This is the Adj. Cost Basis. $700 original cost + $300 total accretion = $1,000 (adjusted cost basis). Finally, compare this number to the selling price to get the gain or loss. $1,000 (adj. cost basis)  $950 selling price = $50 capital loss
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 Course
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 SIE
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 Series 6
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 Series 7
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