Bender Borrows $200,000 from His Uncle's Bank and Invests the Proceeds

question 35

Multiple Choice

Bender borrows $200,000 from his uncle's bank and invests the proceeds in various common stocks.He pays $9,000 in interest on the loan during the current year.The stocks produce $7,200 of dividend income,all taxed at the rate of 15%.Bender reports adjusted gross income of $100,000 in the current year.If the dividend income is his only investment income,how much of the interest expense is deductible by Bender?

• A)$7,000
• B)$7,200
• C)$9,000
• D)None of this interest is deductible.

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Definitions:

Second-hand Cars

Vehicles that have been previously owned and used by one or more owners.

Current-dollar GDP

Gross Domestic Product measured in current prices, without adjusting for inflation or deflation.

Constant-dollar GDP

Gross domestic product figures that have been adjusted for inflation to reflect the real value of goods and services produced in a country.

Underground Economy

Economic transactions that occur outside of government regulation or taxation, including illegal activities and unreported income from legal activities.