Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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,

image text in transcribed

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information And Equity Valuation Theory, Evidence, And Applications

Authors: Guochang Zhang

1st Edition

1461481597, 9781461481591

More Books

Students also viewed these Accounting questions

Question

How do you communicate intimacy nonverbally?

Answered: 1 week ago