On 15 September 2020 you plan to buy a 6% p.a. Treasury bond maturing on 15 September 2026.

a. How much would you pay to earn 7% p.a. on your transaction? Ignore taxation considerations.

b. 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.

c. 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.

d. 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.