Question

Any portion of that gain or loss that is a result of a change in the general (risk-free) interest rate is reported as ________?

1) Capital gain
2) Capital loss
3) Interest gain
4) Interest loss

Answer 1

A portion of gain or loss due to a change in the general interest rate is reported as capital gain or capital loss; the actual rate of return includes both gains and interest income.

Step-by-step explanation:

Any portion of that gain or loss that is a result of a change in the general (risk-free) interest rate is reported as either a capital gain or a capital loss. The actual rate of return on investment includes capital gains and interest income earned over a time period.

A change in the risk-free interest rate typically affects the market value of fixed-income investments like bonds, leading to a capital gain if interest rates fall (bond prices rise) and a capital loss if interest rates rise (bond prices fall). However, the distinction between a capital gain or loss and interest income is important: while interest income is the result of the interest payments received from a bond, a capital gain or loss is the result of selling an asset for either more or less than its purchase price, influenced by market interest rate movements.