A firm issued a coupon bond that pays quarterly coupons at a nominal coupon rate of 10% on the first day of January, April, July and October of each year. The bond is redeemable at 104% of the par value of $100 on any 1 January from 2025 to 2030 at the discretion of the issuer (i.e., the firm), whereby the coupon payment due on that day will also be paid out to the bondholder. An investor bought a unit of the bond on 1 January 2015 shortly after the coupon payment was paid out. The investor is subject to an income tax of 35% and a capital gains tax of 25%. The purchase price will provide a net effective redemption yield of at least 8% per annum. (a) Determine and explain the optimal redemption date of the bond from the issuer's per- spective. (3 marks) (b) Following from part (a), calculate the price paid by the investor on 1 January 2015 if the taxes are payable at the same time as the income and capital gains (if any). (3 marks) (c) Following from part (a), calculate the price paid by the investor on 1 January 2015 if the income tax is payable annually in a single instalment due immediately after the January coupon payment of the following year (e.g., the income tax for the coupon payments at 1 April 2015, 1 July 2015, 1 October 2015 and 1 January 2016 is payable at 1 January 2016), whereas capital gains tax is payable at the same time when the capital gains are realized (if any) (5 marks) (d) Suppose that the income tax is applied according to part (b) instead of part (c). The investor subsequently sold the bond to a tax-exempted fund on 1 January 2018 (imme- diately after the coupon payment was paid out) at a price that provided the fund a net effective redemption yield of at least 7% per annum. Express the equation of value (i.e., you do not need to solve) for the net effective quarterly yield obtained by the investor during the holding period of the bond. (6 marks) A firm issued a coupon bond that pays quarterly coupons at a nominal coupon rate of 10% on the first day of January, April, July and October of each year. The bond is redeemable at 104% of the par value of $100 on any 1 January from 2025 to 2030 at the discretion of the issuer (i.e., the firm), whereby the coupon payment due on that day will also be paid out to the bondholder. An investor bought a unit of the bond on 1 January 2015 shortly after the coupon payment was paid out. The investor is subject to an income tax of 35% and a capital gains tax of 25%. The purchase price will provide a net effective redemption yield of at least 8% per annum. (a) Determine and explain the optimal redemption date of the bond from the issuer's per- spective. (3 marks) (b) Following from part (a), calculate the price paid by the investor on 1 January 2015 if the taxes are payable at the same time as the income and capital gains (if any). (3 marks) (c) Following from part (a), calculate the price paid by the investor on 1 January 2015 if the income tax is payable annually in a single instalment due immediately after the January coupon payment of the following year (e.g., the income tax for the coupon payments at 1 April 2015, 1 July 2015, 1 October 2015 and 1 January 2016 is payable at 1 January 2016), whereas capital gains tax is payable at the same time when the capital gains are realized (if any) (5 marks) (d) Suppose that the income tax is applied according to part (b) instead of part (c). The investor subsequently sold the bond to a tax-exempted fund on 1 January 2018 (imme- diately after the coupon payment was paid out) at a price that provided the fund a net effective redemption yield of at least 7% per annum. Express the equation of value (i.e., you do not need to solve) for the net effective quarterly yield obtained by the investor during the holding period of the bond. (6 marks)