1) In the question, the income tax only on coupon is given, while calculting the price it is not considered, why? 2) after 8 years bond is sold to other investor who pays the income tax on coupon, in this solution the income tax is considered, why? 3) finally, while calculating the annual effective interest for 1st investor, the incime tax is considered, why? Is there any specific theory for this or This is the Mistake by examiner? OR THIS THE MISTAKE? Need help on this topic.....
The question gives the GROSS redemption yield, so you do not consider tax in the first part. The second part gives the NET redmption yield, so you do consider tax for that calculation.
