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2. A $100-bond pays annual interest of 6% p.a. and is to be redeemed at par in 10 years time. The current yield in the

2. A $100-bond pays annual interest of 6% p.a. and is to be redeemed at par in 10 years time. The current yield in the market is 7.5% p.a. a) Calculate the price of the bond allowing for capital gains tax of 25%. b) Recalculate the price if the 25% tax applies to both interest payments and the capital gain.

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