In October 2016, the government of a country issued an index-linked bond redeemable at 109% in exactly one year time. Coupons were payable quarter-yearly in arrears (in Jan, Apr, Jul and Oct) at an annual rate of 9.0%. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. An investor liable to 29% income tax has purchased £8,000 nominal at issue and held it to redemption. The inflation index for the given period was as follows: Inflation indexes for 2016 - 2017 Month January April July October 2016 2017 100.1 108.8 102.5 110.5 104.2 113.1 106.7 114.4 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 5.3% per annum from this investment.
In October 2016, the government of a country issued an index-linked bond redeemable at 109% in exactly one year time. Coupons were payable quarter-yearly in arrears (in Jan, Apr, Jul and Oct) at an annual rate of 9.0%. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. An investor liable to 29% income tax has purchased £8,000 nominal at issue and held it to redemption. The inflation index for the given period was as follows: Inflation indexes for 2016 - 2017 Month January April July October 2016 2017 100.1 108.8 102.5 110.5 104.2 113.1 106.7 114.4 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 5.3% per annum from this investment.
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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