Practice Quiz

FINRA Series 7

Category - Series 7

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Bubba buys a ten-year municipal and at 102 and sells it five years later at 101. What is tax treatment?
  1. a $10 long-term capital loss is realized
  2. the $10 loss is applied as a reduction against ordinary income
  3. no capital loss or income deduction is realized
  4. the $10 loss is applied against future profits in municipal securities
Explanation
Answer: C - no capital loss or income deduction is realized. The $20 premium is amortized over the ten-year life of the bond. After five years, half of the premium has been written down. The remaining premium is the same as the premium received upon selling the bond. The sale at 101 results in no loss or gain.
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