a)A loan of 100 nominal is issued with interest payments (coupon) payable at 8% p.a. monthly in arrears for 7 years, with the amount of the loan repayable at the end of the term. For an investor who is not liable to income tax or capital gains tax, with a required redemption yield of 6%p.a.:

i) Calculate the price the investor should pay for the loan. [2 marks]

ii) If the price of the loan is 100, with the same interest payments, determine the amount that would be needed to be paid at redemption in order to achieve the required rate of return. [1 mark]

iii) If the loan is priced at 100 with a redemption payment of 110 and the same interest payments as above, calculate the redemption yield achieved.

[4 marks]

2. b) A loan of 100 nominal is issued with interest payments (coupon) payable monthly in arrears, with the amount of the loan repayable at the end of the term. The loan may be repaid (redeemed) at any time from 8 years to 15 years after issue.

   For an investor who is not liable to income tax or capital gains tax, with a required redemption yield of 6%p.a.:

   i) If the rate of interest payments (coupon rate) is 8% p.a. payable monthly in arrears, calculate the price an investor should pay for the loan. [3 marks]ii) If the rate of interest payments (coupon rate) is 4% p.a. payable monthly in arrears, calculate the price an investor should pay for the loan. [3 marks]
3. c) A loan of 100 nominal is issued with interest payments (coupon) payable at 8% p.a. monthly in arrears for 7 years, with the amount of the loan repayable at the end of the term. For an investor who is liable to income tax at a rate of 22%, but not capital gains tax, with a required redemption yield of 6%p.a., calculate the price the investor should pay for the loan. [3 marks]

4. d) A loan of 100 nominal is issued with interest payments (coupon) payable at 6% p.a. monthly in arrears for 7 years, with the amount of the loan repayable at the end of the term. For an investor who is liable to income tax at a rate of 22%, and capital gains tax at 30%:

   1. i) Calculate the price an investor should pay for the loan to achieve a required net redemption yield of 6%p.a. [4 marks]

   2. ii) Calculate the net redemption yield an investor would achieve if they were to pay 90 for the loan. [4 marks] [Total: 24 marks]