Answered: a) A Zero Coupon Bond with face value…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 12P: Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may...

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a) A Zero Coupon Bond with face value £100 and maturity in 4 years is sold for £85. Find its (gross) yield.

(b) The same bond as in (a) pays capital gains tax at 20%. What is its net yield?

(c) Find the price of a bond whose face value is £100, it pays semi-annual coupons at a rate of 1.5% p.a., it has maturity in 3 years and produces a yield of 3% p.a. effective. The bond is redeemable at par.

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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