Practice Quiz

FINRA Series 7

Category - Series 7

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Bubba buys a municipal bond at 102 and holds it ten years to maturity. For tax purposes, how is that premium treated?
  1. recorded as a long-term capital loss
  2. an ordinary loss taken as a deduction from taxable income
  3. amortized over the life of the bond resulting in no loss at maturity
  4. carried forward as a premium loss applied against profits realized on future municipal securities
Explanation
Answer: C - amortized over the life of the bond resulting in no loss at maturity. For tax purposes, premiums are amortized over the life of the bond. Some amount is taken each year.
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