A fixed-interest security bears interest of 10% per annumpayable half-yearly in arrear. The security will be redeemed at105% by five instalments, of equal nominal amount, on 31 Julyin each of theyears 2016 to 2020 inclusive. An investor, who isliable to income tax at the rate of 40%, purchasedthe entiresecurity on 31 July 2006, immediately following the interestpayment then due, at a price to obtain a net yield of 9% perannum effective. The present value of cash payable onredemption is ,Select one:a. 166.3O b. 154.5c. 188.045O d. 195.42e. 173.89

The question is based on valuation of fixed interest paying securities , which is calculated as…

A fixed-interest security bears interest of 10% per annum payable half-yearly in arrear. The security will be redeemed at 105% by five instalments, of equal nominal amount, on 31 July in each of theyears 2016 to 2020 inclusive. An investor, who is liable to income tax at the rate of 40%. purchasedihe entire security on 31 July 2006, immediately following the interest payment then due, at a price to obtain a net yield of 9% per annum effective. The present value of cash payable on redemption is Select one: a. 166.3 b. 154.5 O c. 188.045 d. 195.42 e. 173.89

A fixed-interest security bears interest of 10% per annum payable half-yearly in arrear. The security will be redeemed at 105% by five instalments, of equal nominal amount, on 31 July in each of theyears 2016 to 2020 inclusive. An investor, who is liable to income tax at the rate of 40%. purchasedihe entire security on 31 July 2006, immediately following the interest payment then due, at a price to obtain a net yield of 9% per annum effective. The present value of cash payable on redemption is Select one: a. 166.3 b. 154.5 O c. 188.045 d. 195.42 e. 173.89

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company obtains a $1,000,000 variable rate loan on January 1, 2021, at a 2.1% interest rate. The loan is renewable every 3 months, and the interest rate is reset at each renewal. The company hedges against rising interest rates by taking a short futures position in $1,000,000 of 3-month Treasury bills at 99. There is no margin deposit, and the hedge qualifies as a fair value hedge of a firm liability commitment. At the end of 3 months, the Treasury bills sell for 98.2 and the loan renews at 2.9%. The company closes the futures contract and renews the loan. All income effects of the loan and the futures are reported in interest expense. At what amount will interest expense be reported for the new loan? Select one: A. $29,000 B. $ 9,250 C. $ 7,250 D. $ 5,250 Please Show Work
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B10).

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