On January 1st, 2017, a nominal £13,000 index-linked bond was issued, and on January 1st, 2019, it was repaid at a rate of 107%. The bond's interest was paid at a rate of 5.6% annually in half-yearly arrears, (January and July of each year) The bond was bought at issue by an investor who is subject to a 34% income tax liability and kept it until redemption. With a six-month time lag, the value of an inflation index was used to index capital and interest payments. The following were the inflation index values at different points during the loan term: Inflation indexes for 2016 - 2019 (on January 2016=102.3, on January 2017=110.4, on January 2018=123 and on January 2019=130.8) (on July 2016=105.1, on July 2017=116.4, on July 2018=127.5 and on July 2018=136.1) Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.7% per annum from this investment. (correct answer=15826.72) (no tables, only formulas)
On January 1st, 2017, a nominal £13,000 index-linked bond was issued, and on January 1st, 2019, it was repaid at a rate of 107%. The bond's interest was paid at a rate of 5.6% annually in half-yearly arrears, (January and July of each year)
The bond was bought at issue by an investor who is subject to a 34% income tax liability and kept it until redemption.
With a six-month time lag, the value of an inflation index was used to index capital and interest payments. The following were the inflation index values at different points during the loan term: Inflation indexes for 2016 - 2019 (on January 2016=102.3, on January 2017=110.4, on January 2018=123 and on January 2019=130.8) (on July 2016=105.1, on July 2017=116.4, on July 2018=127.5 and on July 2018=136.1)
Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.7% per annum from this investment. (correct answer=15826.72) (no tables, only formulas)
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