What loss does an investor incur when selling a $100,000 face value municipal bond at a premium after two years?

When an investor sells a municipal bond at a premium, it means that the bond was sold for more than its face value. In this scenario, if we specifically look at a bond with a $100,000 face value, we need to consider the price at which the investor is selling it after holding it for two years.

A bond sold at a premium generally indicates the investor received a higher price than the face value due to factors such as lower prevailing interest rates compared to when the bond was issued. However, if the investor sells the bond before maturity and for less than its purchase price (adjusted for premium), a loss can occur.

If the investor originally purchased the bond for, say, $108,000 and later sold it for $100,000 after two years, this would result in a $8,000 loss. Therefore, the correct choice reflects the potential capital loss incurred by selling a bond at a price lower than its acquisition cost (even though it was sold at face value). This situation highlights how bond prices fluctuate and can lead to losses for investors if they sell under specific circumstances, even if the bond itself is deemed a premium investment.

In summary, the loss calculation takes into account the difference between the purchase price of the bond