Question

Seth invested $27,000 in Series EE savings bonds on April 1. By December 31, the published redemption value of the bonds had increased to $27,910. How much interest income will Seth report from the savings bonds in the current year absent any special election

Answer 1

Answer:

Outside any special election, Seth will report $910 as interest income in the current year.

Explanation:

Investment in Series EE savings bond on April 1 = $27,000

Redemption value of bonds by December 31 = $27,910

Interest income = $910 ($27,910 - $27,000)

The effective rate of interest = 3.37% ($910/$27,000 * 100) for nine months, with its annualized rate = 4.5% (3.37%/9 * 12).