A loan of $1,500,000, with interest of 6% per annum payable semiannually in arrears, will be...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A loan of $1,500,000, with interest of 6% per annum payable semiannually in arrears, will be redeemed at par, by annual installments of $30,000, $50,000, $70,000, $30,000, $50,000, $70,000 and so on until the whole loan is repaid. The first annual installment will be made at the end of the 5th year. (a) An investor purchases the entire loan on the issue date at a price to obtain an effective yield of 7% per annum after tax. Calculate the price if the investor is liable to income tax at 35% on interest and to capital gains tax at 30%. (b) Immediately after the 8th interest payment, the investor sells the entire loan at a price of $1,100,000. Using linear interpolation, calculate the net effective yield per annum, after tax, obtained on the complete transaction by the investor. A loan of $1,500,000, with interest of 6% per annum payable semiannually in arrears, will be redeemed at par, by annual installments of $30,000, $50,000, $70,000, $30,000, $50,000, $70,000 and so on until the whole loan is repaid. The first annual installment will be made at the end of the 5th year. (a) An investor purchases the entire loan on the issue date at a price to obtain an effective yield of 7% per annum after tax. Calculate the price if the investor is liable to income tax at 35% on interest and to capital gains tax at 30%. (b) Immediately after the 8th interest payment, the investor sells the entire loan at a price of $1,100,000. Using linear interpolation, calculate the net effective yield per annum, after tax, obtained on the complete transaction by the investor.
Expert Answer:
Answer rating: 100% (QA)
a P 1500000 I 6 n 5 y 7 Aftertax yield y1 t t tax ra... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
A $125,000 loan at 6.0% compounded semiannually will be repaid by monthly payments over a 20-year amortization period. a. Calculate the interest component of Payment 188. b. Calculate the principal...
-
1. A soft sensor made of nylon designed to undergo twisting motion is reinforced with a wire made of nickel titanium (Nitinol). The sensor and Nitinol are rigidly connected. Find the equivalent...
-
If an investor sells shares after the declaration date but before the date of record, does the seller still receive the dividend?
-
Describe, in human terms, why delay and jitter are bad in real time (interactive) voice and video communications. Would these same problems apply to recorded voice and video stored and played back at...
-
Explain the difference between procedural and non-procedural languages.
-
Just in-Time Distributors, an operator of a large distribution network of health-related products, is considering an automated materials-handling system for its major warehouse in Toronto to reduce...
-
Classify inventoriable and period costs (Learning Objective 4)} Classify each of Georgia-Pacific's costs as either inventoriable product costs or period costs. Georgia-Pacific is a manufacturer of...
-
"The transactions completed by Revere Courier Company during December, the first month of the fiscal year, were as follows: Dec. 1. Issued Check No. 610 for December rent, $4,200. 2. Issued Invoice...
-
On September 1 , Rokarie Company borrows $ 6 0 , 0 0 0 from Popular Bank by signing a 6 - month, 8 % , interest - bearing note. Rokarie use the natural year to close the accounting books for it...
-
Solve the structures in Figures P5-16 through P5-18 by using substructuring. Figure P5-16 (Substructure the truss at nodes 3 and 4) Figure P5-17 (Substructure the beam at node 3) Figure P5-18...
-
3. Analyze each of the following Mbius transformations by finding the fixed points, finding the normal form, and sketching the appropriate coordinate system of Steiner circles indicating the motion...
-
Suppose you are made a proposal to acquire an investment that will provide cash flows of $2,250 per year for 15 years. The cost of this investment is $15,750. If you have an alternative investment...
-
What role does the Chief Risk Officer play in the credit process and how does it differ from that of the Chief Credit Officer? Distinguish between the account officer, credit specialists and...
-
You are the financial advisor for a large antique coin and gold distributor. Some of your large customers are requesting the distributor begin accepting cryptocurrency, which is possible because of...
-
Normandeau Company's actual indirect cost pool amounted to $1,400,000 and the direct labour cost pool was $5,400,000. Overhead is allocated on the basis of direct labour hours. Actual and budgeted...
-
Un compresor de flujo axial de 9 etapas y con una razn de presin de 9/1 tiene las razones de presin iguales por etapa, para una de las etapas la temperatura de entrada es de 50 C, el rendimiento...
-
How is the national culture in Indonesia, where the operations are located, different from the national culture of United Kingdom, where the company is headquartered, and from the national culture of
-
Aztec Furnishings makes hand-crafted furniture for sale in its retail stores. The furniture maker has recently installed a new assembly process, including a new sander and polisher. With this new...
-
Use DerivaGem to calculate the value of an American put option on a nondividend paying stock when the stock price is $30, the strike price is $32, the risk-free rate is 5%, the volatility is 30%, and...
-
A futures price is currently 70, its volatility is 20% per annum, and the risk-free interest rate is 6% per annum. What is the value of a five-month European put on the futures with a strike price of...
-
The volatility of a non-dividend-paying stock whose price is $78, is 30%. The risk-free rate is 3% per annum (continuously compounded) for all maturities. Calculate values for u, d, and p when a...
-
Economic order quantity; order cost; carrying cost Liberty Company predicts that it will use 360,000 units of material during the year. The material is expected to cost $5 per unit. Liberty...
-
Recording materials transactions Prepare a journal entry to record each of the following materials transactions: a. Total materials purchased on account during the month amounted to $200,000. b....
-
Journalizing materials requisitions Ozark Manufacturing Inc. records the following use of materials during the month of June: Date Req. No. Use Direct Materials Materials Requisitions Indirect...
Study smarter with the SolutionInn App