A loan of nominal amount £200000 in bonds of nominal amount £100 is to be repaid by 20 annual drawings, each of 100 bonds, the first drawing being 1 year after the issue date. Interest will be payable quarterly in arrears at the rate of 8% per annum. Redemption will be at par for the first 10 drawings and at 140% thereafter. An investor, who will be liable to income tax at the rate of 10%, purchases the entire loan on the issue date at a price to obtain a yield per annum of 5% net effective.

What price does the investor pay for the entire loan?

Answer rating: 100% (QA)

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