An investor purchases a 1,000 5-year bond for 960. At the end of the calendar year, the investor notices that the bond is now trading at 980. Which of the following statements correctly describes the applicable taxation of this change in value for the investor?
1) The investor must report a capital gain of 20
2) There is no amount taxable
3) The investor must report interest earnings of 20
4) The investor must report interest earnings of 40