An investor purchases a bond 6 months after the issue. The bond will be redeemed at 105% eight years after issue and pays coupons of 4% per annum annually in arrears. The investor pays a tax of 25% on income and 15% on capital gains. a. Calculate the bond's purchase price per $100 nominal to provide the investor with a rate of return of 5% per annum effective. b. If the real rate of return expected by the investor from the bond is 2% per annum effective, then calculate the annual rate of inflation expected by the investor
An investor purchases a bond 6 months after the issue. The bond will be redeemed at 105% eight years after issue and pays coupons of 4% per annum annually in arrears. The investor pays a tax of 25% on income and 15% on capital gains. a. Calculate the bond's purchase price per $100 nominal to provide the investor with a rate of return of 5% per annum effective. b. If the real rate of return expected by the investor from the bond is 2% per annum effective, then calculate the annual rate of inflation expected by the investor
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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An investor purchases a bond 6 months after the issue. The bond will be redeemed at 105% eight years after issue and pays coupons of 4% per annum annually in arrears. The investor pays a tax of 25% on income and 15% on capital gains. a. Calculate the bond's purchase price per $100 nominal to provide the investor with a rate of return of 5% per annum effective. b. If the real rate of return expected by the investor from the bond is 2% per annum effective, then calculate the annual rate of inflation expected by the investor
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