Freddy Purchased a Certificate of Deposit for $20,000 on July

question 23

Multiple Choice

Freddy purchased a certificate of deposit for $20,000 on July 1,2014.The certificate's maturity value in two years (June 30,2016) is $21,218,yielding 3% before-tax interest.

• A)Freddy must recognize $1,218 gross income in 2014.
• B)Freddy must recognize $1,218 gross income in 2016.
• C)Freddy must recognize $600 (.03 × $20,000)gross income in 2016.
• D)Freddy must recognize $300 (.03 × $20,000 × .5)gross income in 2014.
• E)None of these.

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Definitions:

Face Value

The nominal value stated on a financial instrument, such as a bond or stock, representing its worth at issuance or maturity.

Market Value

The current price at which an asset or service can be bought or sold in the open market.

Upward Sloping Yield Curve

A graph showing higher interest rates for longer-term debt compared to shorter-term debt, indicating investor anticipations of rising interest rates in the future.

Normal Curve

The normal curve, or normal distribution, is a bell-shaped curve that shows the probability distribution of a continuous random variable, where most occurrences take place near the mean.