on An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at 114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of each year) at a rate of 5.1% per annum. An investor liable to income tax at a rate of 31% 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 2016-2020 2016 2017 2018 2019 2020 January 103.6 109.2 117 123.5 129.3 July 101.8 108.2 112.1 120.5 125.5 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.2% per annum from this investment.
on An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at 114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of each year) at a rate of 5.1% per annum. An investor liable to income tax at a rate of 31% 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 2016-2020 2016 2017 2018 2019 2020 January 103.6 109.2 117 123.5 129.3 July 101.8 108.2 112.1 120.5 125.5 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.2% 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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Transcribed Image Text:on
An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at
114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of
each year) at a rate of 5.1% per annum.
An investor liable to income tax at a rate of 31% 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
2016-2020
2016 2017 2018 2019 2020
January 103.6 109.2 117 123.5 129.3
July 101.8 108.2 112.1 120.5 125.5
Calculate the price paid at issue for the bond, given that the investor has achieved an
effective money yield of 6.2% per annum from this investment.
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