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loan of nominal amount £10,000 will be issued paying coupons quarterly in arrears at a rate of % per annum.

loan of nominal amount £10,000 will be issued paying coupons quarterly in arrears at a rate of % per annum.

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
Problem 1PS
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Using formulas, no tables, correct answer= 6,962.61

A loan of nominal amount £10,000 will be issued paying coupons quarterly in arrears at a rate of 4% per annum. The capital is to be redeemed at 103% on a single coupon date between 15 and 25 years after the date of issue, inclusive. The date of redemption is at the option of the borrower. An investor who is liable to income tax at 30% and capital gains tax of 10% wishes to purchase the entire loan at the date of issue. Showing full workings, calculate the price that the investor should pay to ensure a net effective return of at least 5% per annum.
Transcribed Image Text:A loan of nominal amount £10,000 will be issued paying coupons quarterly in arrears at a rate of 4% per annum. The capital is to be redeemed at 103% on a single coupon date between 15 and 25 years after the date of issue, inclusive. The date of redemption is at the option of the borrower. An investor who is liable to income tax at 30% and capital gains tax of 10% wishes to purchase the entire loan at the date of issue. Showing full workings, calculate the price that the investor should pay to ensure a net effective return of at least 5% per annum.
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Using formulas, no tables, correct answer= 6,962.6, can you try again?

 

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