Jasmine purchases a 1-year, $10,000 face value strip bond for $9,600. At maturity, when Jasmine receives $10,000, which of the following statements is CORRECT?
Jasmine realizes interest income of $400 because she bought a strip bond, which is a bond that has its principal and coupon payments separated and sold individually. Jasmine bought the principal-stripped bond, also known as a zero-coupon bond, which pays no interest until maturity. The difference between the purchase price and the face value at maturity is considered interest income and is taxable in the year it is received. References: Strip Bonds: Definition, How They Work, Returns, and Example
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