Assignemt X3.4 On 1 July 2002 an investor subject to 40% tax on income purchased a fixed interesd security paying half-yearly coupons at 3.5% pa ( on 1 Jan. and 1July ) and redeemable at par on 1 July 2010.Income tax is payable on 1 november each year in respect of any coupons received during the previous tax year ( running from 6 april to 5 april ). calculate the price paid by the investor who requires a net yield to maturity of 6% pa effective. Please tell me How to calculate the tax payment on november 2003 in the solution.
The payment in July 2003 is not counted as part of the tax bill due on 1st November 2003, just the payments on 1 Jan 2003. This then means the PV of the tax due on 1st November 2003 is v^(16/12)*(0.0175)*(Nominal Value) T.
The payment does need to counted. However, the tax due to be paid on November 2003 covers the tax due on the payments received during the previous tax year - which means only the payments received between the 6th April 2002 and the 5th April 2003. As July 2003 is after that - the tax for that falls due on November 1st 2004. T.
