Aloan stock has been issued by a company with a coupon of6% per annum payable half-yearlyin arrearsand redeemable at 115% at any duration from20to 25 yearsat the option of the company.An investor who...

Aloan stock has been issued by a company with a coupon of6% per annum payable half-yearlyin arrearsand redeemable at 115% at any duration from20to 25 yearsat the option of the company.An investor who is liable to capital gains tax (CGT) at 30% and income tax at 40% bought the stock at issue at a price givingthe investor a minimum net yield of 7% per annum effective.Fifteenyears later, the investor sold the stock to a pension fundthat is not liable to tax, at a price which gave the fund a minimum gross yield of 5% per annum.

(a)Calculate the price paid by the investorwhen purchasing the stock.

(b)Calculate the sale price of the stock.

(c)Calculate, to the nearest 1%, the net effective annual rate of return achieved by the investor.