Pedro, Not a Dealer, Sold Real Property That He Owned

question 3

Multiple Choice

Pedro, not a dealer, sold real property that he owned with an adjusted basis of $120,000 and encumbered by a mortgage for $56,000 to Pat in 2017.The terms of the sale required Pat to pay $28,000 cash, assume the $56,000 mortgage, and give Pedro 11 notes for $12,000 each (plus interest at the Federal rate) .The first note was payable two years from the date of sale, and each succeeding note became due at two-year intervals.Pedro did not elect out of the installment method for reporting the transaction.If Pat pays the 2019 note as promised, what is the recognized gain to Pedro in 2019 (exclusive of interest) ?

• A)$12,000
• B)$7,200
• C)$4,800
• D)$0
• E)None of these

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Definitions:

Risk-free Rate

A theoretical return on an investment with zero risk, typically represented by government bonds.

Portfolio Beta

A measurement of the volatility of a portfolio compared to the market as a whole.

Risk-free Asset

An investment with a guaranteed return and no risk of loss, often represented by government bonds.

Beta

An evaluation of the consistent risk or volatility of a security or a portfolio relative to the overall market.