an investor in a country with an original issue discount tax provision purchases a 20-year zero-coupon bond at a deep discount to par value. The investor plans to hold the bond Until the maturity date. The investor will most likely report:
A) a capital gain at maturity.
B) a tax deduction in the year the bond is purchased.
C) taxable income from the bond every year until maturity.

Question

Quizplus · Accepted Answer

Since the bond is purchased at a deep discount and the country has an original issue discount tax provision, the investor must report the accreted interest as taxable income each year, even though no actual cash interest is received until the bond matures.

An Investor in a Country with an Original Issue Discount