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I need help in part 4 only On 15 September 2020 you plan to buy a 6% p.a. Treasury bond maturing on 15 September 2026.

I need help in part 4 only

On 15 September 2020 you plan to buy a 6% p.a. Treasury bond maturing on 15 September 2026. Assume face value is 100.

  1. [1/2 mark] How much would you pay to earn 7% p.a. on your transaction? Ignore taxation considerations.

  2. [1 mark] How much would you pay to earn a net return of 7% p.a. on your transaction, allowing for tax on interest only of 30%? In this instance, assume tax on interest is paid immediately.

  3. [11/2 marks] How much would you pay to earn a net return of 7% p.a. on your transaction, allowing for tax on interest and capital gains of 30%? In answering this question, you should assume that the tax on interest and capital gains is deferred by twelve months.

  4. [2 marks] Allowing for tax on interest and capital gains of 30%, what would your net annual yield be if you paid $97.447 for the bond? Again, assume that the tax on interest and capital gains is deferred by twelve months.

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