1- A loan of nominal amount $100,000 is to be issued bearing coupons payable quarterly in arrear at a rate of 5% per annum. Capital is to be redeemed at 103 on asingle coupon date between 15 and 20 years after the date of issue, inclusive. Thedate of redemption is at the option of the borrower. An investor who is liable toincome tax at 20% and capital gains tax of 25% wishes to purchase the entire loanat the date of issue. Calculate the price which the investor should pay to ensure anet eective yield of at least 4% per annum.2. An investor purchased a bond with exactly 15 years to redemption. The bond,redeemable at par, has a gross redemption yield of 5% per annum effective. It payscoupons of 4% per annum, half yearly in arrear. Assume that the investor pays25% income tax on coupons only.(a) Calculate the price paid for the bond.(b) After exactly eight years, immediately after the payment of the coupon thendue, this investor sells the bond to another investor who pays income tax at arate of 25% and capital gains tax at a rate of 40%. The bond is purchased bythe second investor to provide a net return of 6% per annum effective.i. Calculate the price paid by the second investor.ii. Calculate, to one decimal place, the annual effective net rate of returnearned by the first investor during the period for which the bond washeld.
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]