A loan of $1,500,000, with interest of 6% per annum payable semiannually in arrears, will be...

Transcribed Image Text:

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.

Answer rating: 100% (QA)

a P 1500000 I 6 n 5 y 7 Aftertax yield y1 t t tax ra... View the full answer