Question: Step by step solution would be appreciated thanks In January 2003, the government of a country issued an index-linked bond redeemable at 100% in exactly

 Step by step solution would be appreciated thanks In January 2003,

Step by step solution would be appreciated thanks

In January 2003, the government of a country issued an index-linked bond redeemable at 100% in exactly 3 years time. Coupons were payable annually in arrears at an annual rate of 6.6% Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months An investor liable to income tax and capital gains tax at rates 30% and 26%, respectively, has purchased 12,000 nominal at issue and heldit to redemption. The inflation index for the given period was as follows Inflation indexes 2002 2006 January 100.8 Year July 105.5 110.3 115.2 120.3 126.0 Calculate the price paid at issue for the bond, 2002 2003 2004 2005 2006 107.4 113.6 116.1 122.7 given that the investor has achieved an effective money yield of 3.1% per annum from this investment 25.70 The correct answer is: 14194.42

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