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An index-linked bond of £28,000 nominal was issued on 1st Apr 2017 and it was repaid at 106% on 1st Apr 2018. Interest on the bond was payable quarter-yearly in arrears (i.e. in Jan, Apr, Jul, and Oct) at a rate of 4.5% per annum. An investor liable to income tax at a rate of 30% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2018 January April July October 2016 100 101.2 102.2 103.5 108.7 112.4 2017 105 2018 109.6 105.6 106.9 110.6 111.8 Calculate the price paid at issue for the bond, given that the investol has achieved an effective money yield of 5.4% per annum from this investment.

An index-linked bond of £28,000 nominal was issued on 1st Apr 2017 and it was repaid at 106% on 1st Apr 2018. Interest on the bond was payable quarter-yearly in arrears (i.e. in Jan, Apr, Jul, and Oct) at a rate of 4.5% per annum. An investor liable to income tax at a rate of 30% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2018 January April July October 2016 100 101.2 102.2 103.5 108.7 112.4 2017 105 2018 109.6 105.6 106.9 110.6 111.8 Calculate the price paid at issue for the bond, given that the investol has achieved an effective money yield of 5.4% per annum from this investment.

Essentials Of Investments
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
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An index-linked bond of £28,000 nominal was issued on 1st Apr 2017 and it was repaid at 106% on 1st Apr 2018. Interest on the bond was payable quarter-yearly in arrears (i.e. in Jan, Apr, Jul, and Oct) at a rate of 4.5% per annum. An investor liable to income tax at a rate of 30% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2018 January April July October 101.2 102.2 103.5 2017 105 105.6 106.9 108.7 2018 109.6 110.6 111.8 112.4 2016 100 Calculate the price paid at issue for the bond, given that the investol has achieved an effective money yield of 5.4% per annum from this investment.
Transcribed Image Text:An index-linked bond of £28,000 nominal was issued on 1st Apr 2017 and it was repaid at 106% on 1st Apr 2018. Interest on the bond was payable quarter-yearly in arrears (i.e. in Jan, Apr, Jul, and Oct) at a rate of 4.5% per annum. An investor liable to income tax at a rate of 30% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2018 January April July October 101.2 102.2 103.5 2017 105 105.6 106.9 108.7 2018 109.6 110.6 111.8 112.4 2016 100 Calculate the price paid at issue for the bond, given that the investol has achieved an effective money yield of 5.4% per annum from this investment.
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