What is the formula to derive realized gain when a bond is sold?

Prepare for the CAS Exam 6 with detailed study materials. Use flashcards and multiple-choice questions, each with hints and explanations, to get exam-ready!

Multiple Choice

What is the formula to derive realized gain when a bond is sold?

When you sell a bond, the amount you actually realize is determined by comparing the sale proceeds to the bond’s adjusted carrying value on the books (the book value after amortizing any premium or discount). Realized gain equals the amount received from the sale minus the adjusted carrying value. If the sale price exceeds the adjusted carrying value, you record a gain; if it’s less, you record a loss. Subtracting the sale amount from the carrying value would give the opposite sign, and using purchase price minus selling price ignores the fact that the carrying value has been adjusted over time. Coupon minus accrued interest relates to interest income, not the gain or loss on sale.

When you sell a bond, the amount you actually realize is determined by comparing the sale proceeds to the bond’s adjusted carrying value on the books (the book value after amortizing any premium or discount). Realized gain equals the amount received from the sale minus the adjusted carrying value. If the sale price exceeds the adjusted carrying value, you record a gain; if it’s less, you record a loss.

Subtracting the sale amount from the carrying value would give the opposite sign, and using purchase price minus selling price ignores the fact that the carrying value has been adjusted over time. Coupon minus accrued interest relates to interest income, not the gain or loss on sale.

More practice questions