A fixed interest security was issued on 1 January in a given year. The security pays half-yearly coupons of 4% per annum. The security is redeemable at 110 % 20 years after issue. An investor whopays both income tax and capital gains tax at a rate of 25% buys the security on the date of issue. Income tax is paid on coupons at the end of the calendar year in which the coupon is received.Capital gains tax is paid immediately on sale or redemption. (i) Calculate the price paid by the investor to give a net rate of return of 6% per annum effective. (ii) Calculate the duration of the netpayments from the fixed interest security for an investor who pays income tax as described above but who does not pay capital gains tax, at a rate of interest of 6% per annum effective.

calculate the present value of the coupons and the redemption value, and then we'll use the formula…

year. The security pays half-yearly coupons of 4% per annum. The security is redeemable at 11 buys the security on the date of issue. Income tax is paid on coupons at the end of the calenda n. (i) Calculate the price paid by the investor to give a net rate of return of 6% per annum effectiv ho pays income tax as described above but who does not pay capital gains tax, at a rate of intere

year. The security pays half-yearly coupons of 4% per annum. The security is redeemable at 11 buys the security on the date of issue. Income tax is paid on coupons at the end of the calenda n. (i) Calculate the price paid by the investor to give a net rate of return of 6% per annum effectiv ho pays income tax as described above but who does not pay capital gains tax, at a rate of intere

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

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 the years 2016 to 2020 inclusive. An investor, who is liable to income tax at the rate of 40%, purchased the entire security on 31 July 2006, immediately following the interest payment then due, at a priceto obtain a net yield of 9% per annum effective. The annual coupon rate per unit is Select one: a. 7.14% b. 11.6% O c. 12.4% d. 10% e. 9.52%
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%, purchasedthe 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 O b. 154.5 c. 188.045 O d. 195.42 e. 173.89
An individual deposits £10,500 each year into a tax-free savings plan over a 20-year period. The payments are made monthly in arrears during the first 5 years and thereafter quarterly in arrears for the remaining 15 years. The savings plan pays compound interest at the rates of: ● ● (i) 6% p.a. nominal convertible monthly for the first 10 years, and 7.5% p.a. nominal convertible quarterly for the remaining 10 years. Calculate the total amount of fund accumulated in the savings plan at the end of the 20- year period. (ii) At the end of the 20-year period, the individual intends to invest the total savings into a level fixed term annuity product that provides a future retirement income. Calculate the monthly income that the individual can obtain by investing the sum calculated in part (i) into a 25-year term annuity payable monthly in arrears at an effective interest rate of 4.5% p.a.
An investor decides to purchase a five-year annuity with an annual nominal interest rate of 12%% convertible monthly for a price of X. Under the terms of the annuity, the investor is to receive 2 at the end of the first month. The payments increase by 2 each month thereafter. Calculate X.
A security pays $55 in one year and $133.10 in three years. Present value of this security is $150. The relevant interest rate is %.
A security pays you an annual amount of $900 for 10 years. The seller of the security requires the first payment to be made today and the last payment to be made 9 years from today. Interest rate on this security is 5.75 percent per annum. Calculate the present value rounded to 2 decimal places. Using a financial calculator
Several months ago, Buddy Inc. issued a unique fixed income security. As of today, the security is maturing in 11 months. The security pays semi-annual interest, which is equal to X% p.a minus the 6 month LIBOR, where X% is equal to the sum of 6% p.a. and the 3-month LIBOR rate. That is, in every six months, the interest is defined as: L3% + 2 6% L6% 4 2 where, L6 (quoted on an annual basis, in %) is the 6-month LIBOR and L3 (also quoted on an annual basis, in %) is the 3-month LIBOR. Assume that the 6-month LIBOR will never exceed 6% p.a. At maturity, the company will pay $100 as the face value of the security. Also, assume all other bonds and floating rate notes have a face value of $100, respectively. Table 1 shows the 3-month and 6-month LIBOR rates observed in the previous months as follows: Table 1 2 months ago 3.4% р.a. 1 month ago 3.1% р.а. 3-month LIBOR 6-month LIBOR 3.7% р.a. For example, two months ago, the 3-month LIBOR rate was observed at 3.4% p.a. 3.4% р.a. Table 2 shows…
A security pays you an annual amount of $900 for 10 years. the sellerof the security require the first payment to be made today and the last payment to be made 9 years from today. Interest rate on this security is 5.75 percent perannum. Calculate the present value rounded to 2 decimaal places.
A simple "EE US Treasury Savings Bond" pays the holder $1000 in 30 years. Given that the applicable interest rate on the bond is 2.5% APR compounded monthly, how much does the bond cost today? (The purchase date is always time t=0 for each transaction).
A borrower takes out a 15-year loan for $65000 with equal end-of-month payments. The annual nominal interest rate of the loan is 12% convertible monthly. Immediately after the 60th payment is made, the remaining loan balance is reamortized. The maturity date of the loan remains unchanged, but the annual nominal interest rate of the loan is changed to 6% convertible monthly. Calculate the new endof-month payment.
A company will receive payments of $8,000 per year for the next five years under a subscription contract. The first payment will be made at the beginning of the contract. Assuming an annual interest rate of 4% is appropriate, the present value of an ordinary annuity is 4.45182 x $8,000 = $35,615, and the present value of an annuity due is 4.62990 x $8,000 = $37,039. Which amount must the company record for this sale in accordance with generally accepted accounting principles (GAAP) if collection is reasonably assured? $37,039 $0 $40,000 $35,615
On December 31, 2024, when the market interest rate is 14%, McMann Realty issues $800,000 of 11.25%, 10-year bonds payable. The bonds pay interest semiannually. Determine the present value of the bonds at issuance. (Round all currency amounts to the nearest whole dollar.) (Click the icon to view Present Value of Ordinary Annuity (Click the icon to view Present Value of $1 table.) of $1 table.) (Click the icon to view Future Value of $1 table.) of $1 table.) The present value of the bonds at issuance amounts to (Click the icon to view Future Value of Ordinary Annuity