Karen Is Single and Graduated from Marring University in May

question 119

Multiple Choice

Karen is single and graduated from Marring University in May of 2017. In January of 2018, she begins repaying her student loans and in 2018 pays $2,800 of interest on the loans. Her adjusted gross income is $51,000.
I.Karen can deduct $2,500 of interest as a deduction for adjusted gross income.
II.Karen can deduct $2,800 of interest as a deduction from adjusted gross income.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Coupon Rate

The interest rate on a bond, expressed as a percentage of the bond's face value, paid by the bond issuer to the bondholder at specified intervals.

Zero-Coupon Bond

A bond that does not pay periodic interest, but is issued at a deep discount, with the return being the difference between the purchase price and the face value at maturity.

Stripped Bond

A debt security where the principal and regular coupon payments have been separated and are sold as individual securities.

Inflation Premium

The part of the nominal interest rate that represents compensation to the lender for the loss of purchasing power due to inflation.