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IAS282 Class test 6 - This is used in IAS 282 an actuarial science module at TUKS/UP during second

This is used in IAS 282 an actuarial science module at TUKS/UP during...
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Actuarial Science (IAS 282)

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Academic year: 2022/2023
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Department Actuarial Science University of Pretoria

Page 1 of 1

Actuarial Mathematics 282

Class Test 6

Date: 8 September 2022 Time: 24 minutes + 5 minutes for submission Total: 13 marks

Question 2

GotzToBe, a manufacturing company, recently issued a bond with a nominal value of R500 000. According to the agreement, this bond will pay quarterly coupons with an annual rate of 10%. The first coupon is due on the purchase of the bond. The bond is redeemable at

par in ! "*N years’ time. In this case, N is the number of quarters chosen by the holder of the bond.

A group of inexperienced investors decide to purchase this bond on the first day of 2022 for R400 000. They are liable for 40% income tax. All income tax rising from income earned during a tax period is payable every year on the specified dates below:

Tax periods Tax payment dates August - December 1 January, the following year January - April 1 May May - August 1 September

a) Assume the investors require a net redemption yield of 8%, effective annually. Which value of N should the investors choose? !𝐻𝑖𝑛𝑡: 14 ∗ 𝑁 ∈ [49; 50] 0 [8] b) Assume the investors require a gross redemption yield of 8%, effective annually. Without doing any further calculations, explain how the value of N will change. [2] c) After a couple of years, the investors decide to sell the same bond to their friends on New Year’s Day. Calculate the price that their friends should pay if the bond is to be redeemable in 10 years’ time from date of sale, with an annual effective gross redemption yield of 10%. [3]

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IAS282 Class test 6 - This is used in IAS 282 an actuarial science module at TUKS/UP during second

Course: Actuarial Science (IAS 282)

12 Documents
Students shared 12 documents in this course

University: University of Pretoria

Was this document helpful?
Department Actuarial Science
University of Pretoria
Page 1 of 1
Actuarial Mathematics 282
Class Test 6
Date: 8 September 2022
Time: 24 minutes + 5 minutes for submission
Total: 13 marks
Question 2
GotzToBe, a manufacturing company, recently issued a bond with a nominal value of
R500 000. According to the agreement, this bond will pay quarterly coupons with an annual
rate of 10%. The first coupon is due on the purchase of the bond. The bond is redeemable at
par in
!
"
*N years’ time. In this case, N is the number of quarters chosen by the holder of the
bond.
A group of inexperienced investors decide to purchase this bond on the first day of 2022 for
R400 000. They are liable for 40% income tax. All income tax rising from income earned
during a tax period is payable every year on the specified dates below:
Tax periods
Tax payment dates
August - December
1 January, the following year
January - April
1 May
May - August
1 September
a) Assume the investors require a net redemption yield of 8%, effective annually. Which
value of N should the investors choose? !
𝐻𝑖𝑛𝑡:'1
4∗ 𝑁#∈ [49;50]
0
[8]
b) Assume the investors require a gross redemption yield of 8%, effective annually.
Without doing any further calculations, explain how the value of N will change.
[2]
c) After a couple of years, the investors decide to sell the same bond to their friends on
New Year’s Day. Calculate the price that their friends should pay if the bond is to be
redeemable in 10 years’ time from date of sale, with an annual effective gross
redemption yield of 10%.
[3]

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