Unsure O Part D An investor resides in a tax jurisdiction where the income tax rate...
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Unsure O Part D An investor resides in a tax jurisdiction where the income tax rate is 20% pa. and no capital gains tax is applicable. The investor is considering two possible investments, one in a share of a company (an equity), and another in a fixed interest asset (a bond) The investor's desired money yield is 5% pa. ***-** & ------- Question 4 has four parts (4 +2+3+3= 12 marks) (a) The bond under consideration has a term of 5 years, a redemption amount of $100, pays coupons annually in arrears, with income tax applied at a rate of 20%. The bond is priced at $90. Calculate the coupon rate for the bond to achieve the desired yield? [4 marks] RYZ 4 of 12 O (b) Suppose an ex-dividend equity after a dividend amount of D, has an assumed annual dividend growth rate of g in perpetuity, an expected annual yield of i, and an income tax rate of this applicable to dividend payments. Assuming that i>g, write down an expression for the price P in terms of D, g, t and i. [2 marks] B1 (c) The equity under consideration is also priced at $90. If the investor's outlook on the company's growth prospects is conservative and believes the dividend amounts will remain stable and not grow, use your expression from Question 4 (b) to calculate the required annual dividend amount to achieve the desired yield for this equity investment? [3 marks] (d) If the investor revises their goal and now seeks to achieve a desired real yield of 5% pa, and believes inflation will be greater than 0 over the coming years. Discuss how the required coupon rate calculated in Question 4 (a) and the required annual dividend amount calculated in Question 4 (c) would change? IA へ中 RYZEN Unsure O Part D An investor resides in a tax jurisdiction where the income tax rate is 20% pa. and no capital gains tax is applicable. The investor is considering two possible investments, one in a share of a company (an equity), and another in a fixed interest asset (a bond) The investor's desired money yield is 5% pa. ***-** & ------- Question 4 has four parts (4 +2+3+3= 12 marks) (a) The bond under consideration has a term of 5 years, a redemption amount of $100, pays coupons annually in arrears, with income tax applied at a rate of 20%. The bond is priced at $90. Calculate the coupon rate for the bond to achieve the desired yield? [4 marks] RYZ 4 of 12 O (b) Suppose an ex-dividend equity after a dividend amount of D, has an assumed annual dividend growth rate of g in perpetuity, an expected annual yield of i, and an income tax rate of this applicable to dividend payments. Assuming that i>g, write down an expression for the price P in terms of D, g, t and i. [2 marks] B1 (c) The equity under consideration is also priced at $90. If the investor's outlook on the company's growth prospects is conservative and believes the dividend amounts will remain stable and not grow, use your expression from Question 4 (b) to calculate the required annual dividend amount to achieve the desired yield for this equity investment? [3 marks] (d) If the investor revises their goal and now seeks to achieve a desired real yield of 5% pa, and believes inflation will be greater than 0 over the coming years. Discuss how the required coupon rate calculated in Question 4 (a) and the required annual dividend amount calculated in Question 4 (c) would change? IA へ中 RYZEN
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a The desired yield is 5 and the income tax rate is 20 The price of the bond is 90 and the redemption value is 100 The coupon rate is calculated as fo... View the full answer
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