A company that pays tax at the rate of 25% on income and 30% on capital gains is considering purchasing a bond at a price that would ensure a net redemption yield of at least 6.5% per annum. A bond of nominal value £100,000 which pays half-yearly coupons of 7.5% per annum in arrears is available. It is redeemable at 105% at the option of the borrower on any coupon payment date between 15 and 20 years (inclusive) after the date of purchase. (i) Determine whether or not the company would make a capital gain if the bond is purchased and is held until redemption. (ii) Explain how your answer to part (i) influences the assumptions made in calculating the maximum price that the company should pay for the bond for the given target net redemption yield. (iii) Calculate the maximum price that the investor should pay. (iv) The annual rate of inflation expected by the company over the period during which the stock is held is 3.5% per annum effective. Calculate the minimum real annual effective rate of return which the company can expect to obtain on this investment to the nearest 0.1%.

Suppose A=D+E, E=$350,000 and E/A=0.7. Solve for D.

Determine the present value of the following single amounts. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Determine the present value of the following single amounts. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 1. 2. 3. 4. Future Amount $ 25,000 $ 19,000 $ 30,000 $ 45,000 ¡= 6% 10% 12% 11% n = 11 14 29 10 Present Value

Determine the future value of the following single amounts. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 1. 2. 3 4. Invested Amount 15,000 20,000 30,000 50,000 $ $ $ U $ i = 6% 8% 12% 4% n = 12 10 20 12 Future Value