Question
On January 1, 2014, Corporation A purchases bonds in Corporation B. The bonds have a par value of $50,000 and a stated interest rate of
On January 1, 2014, Corporation A purchases bonds in Corporation B. The bonds have a par value of $50,000 and a stated interest rate of 6%, with annual interest payments on December 31 and a maturity date of December 31, 2023. Corporation A purchases the bonds for $43,290 to yield 8% interest and holds the bonds in its trading account.
On December 31, 2014, the fair value of the bonds is $45,000. When the bond market opens on January 2, 2015, Corporation B sells the bonds for an amount intended to achieve a 7% yield for Corporation A.
Disregarding accrued interest, what gain (rounded to whole dollars) should Corporation A recognize on the bonds in 2015?
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