# Possible error in exam on tax accretion

**URL:** <https://talk.achievable.me/t/possible-error-in-exam-on-tax-accretion/8831>\
**Category:** FINRA Series 7\
**Created:** [June 27, 2025, 12:17am UTC](https://talk.achievable.me/t/possible-error-in-exam-on-tax-accretion/8831 "2025-06-27T00:17:58Z")\
**Posts on this page:** 2\
**Page:** 1

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**Author:** ![Myra\_Auer](https://talk.achievable.me/letter_avatar/myra_auer/32/6_449c533f586939b6e5f246632a46421f.png) [@Myra\_Auer](https://talk.achievable.me/u/Myra_Auer)\
**Post date:** [June 27, 2025, 12:17am UTC](https://talk.achievable.me/t/possible-error-in-exam-on-tax-accretion/8831/1 "2025-06-27T00:17:58Z")

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Subject: Possible Error in Exam Question #20 – Tax Consequences from Accretion

Message:

Hi Achievable Team,

I came across a question on Exam #20 (screenshot attached) regarding the tax consequences of accreting a 10-year, $1,000 par, 11% mortgage bond purchased at 80 and sold at 98 after 8 years.

After breaking it down, the correct tax consequences should be:  
• $160 of taxable interest (from accreting $20/year for 8 years)  
• $20 of capital gain (sale at $980 with an adjusted basis of $960)

However, none of the provided answer choices reflect this correct combination. The closest options either underreport the taxable interest or incorrectly calculate the capital gain/loss.

Could you please review this question and confirm whether there’s a mistake in the answer choices?

@Justin

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**Author:** ![Justin](https://talk.achievable.me/user_avatar/talk.achievable.me/justin/32/41_2.png) [@Justin](https://talk.achievable.me/u/Justin)\
**Post date:** [June 27, 2025, 5:22am UTC](https://talk.achievable.me/t/possible-error-in-exam-on-tax-accretion/8831/2 "2025-06-27T05:22:05Z")

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Hi, I reviewed this question, and it’s accurate.

> Accretion relates to a bond discount, not a bond premium. When a bond discount is accreted, the investor adds the annualized discount to their taxable interest on an annual basis. This bond pays $110 in taxable interest annually and the annualized discount is $20 ($200 discount over 10 years). Therefore, the reported taxable interest this year is $130 ($110 coupon + $20 annualized discount).

> After 8 years, the bond’s cost basis is $960 (cost basis rises by annualized discount every year). The bond’s sales proceeds is $980, which results in a $20 capital gain.

[https://app.achievable.me/study/finra-series-7/quiz/3YM7K#seed=DMXCR&slug=an-investor-purchases-a-10-year-dollar1000-par-11percent-mortg](https://app.achievable.me/study/finra-series-7/quiz/3YM7K#seed=DMXCR&slug=an-investor-purchases-a-10-year-dollar1000-par-11percent-mortg)…

By the way, it’s best to provide feedback using the mail icon ✉ at the top right of the question! When you use that form, we’re able to see the exact version of the question you’re viewing.