Randolph Borrows $100,000 from His Uncle's Bank and Invests the Proceeds

Multiple Choice

Randolph borrows $100,000 from his uncle's bank and invests the proceeds in various state and local bonds. He pays $9,000 in interest on the loan during the current year. The bonds produce $7,200 of tax-exempt interest income. Randolph reports adjusted gross income of $100,000 in the current year. How much of the interest expense is deductible by Randolph?

A) $7,000
B) $7,200
C) $9,000
D) None of this interest is deductible.