1. On January 1 of this year, Curly made a demand loan to his best friend, Larry, at 2% simple interest. Larry used the funds to take a 9-month tour of Europe. Larry has not repaid the loan as of the end of the tax year. What is the amount of Curlys imputed interest income for this year if the loan amount was $200,000? The applicable Federal rate is 4% compounded semiannually (interest on $200,000 at the AFR would be $8,080).

2.Which of the following is most accurate?

a) Larry will have imputed compensation of $8,080, which is included in Larry's gross income b)Larry will have imputed compensation of $4,080, which is included in Larry's gross income c)Larry will have an imputed gift of $8,080, which is included in Larry's gross income d)Larry will have an imputed gift of $4,080, which is included in Larry's gross income ENone of the above are accurate