A small charity, which is not subject to any form of tax, has carried out transactions involving the government stocks whose details are shown below:

All these stocks are conventional gilts which pay coupons twice a year on the 11 dates indicated and are redeemable at par on the last coupon date. When stocks are purchased between coupon dates, the purchaser is entitled to receive the next coupon payment in full.

On 1 July 2000 the charity purchased a nominal holding of 50,000 of Gilt A at a price that offered a gross redemption yield of 9% per annum convertible half yearly. On 1 March 2001 half the holding of Gilt A was sold at a price such that a private investor subject to 25% income tax who was purchasing the stock would have obtained a net redemption yield of 6% convertible half yearly. The proceeds were used to buy a holding of Gilt B, which was priced at 127.44%. On 15 September 2001 the charity purchased a nominal holding of 25,000 of Gilt C at a price such that an overseas investor subject to 40% income tax and 40% capital gains tax who was purchasing the stock would have obtained a net redemption yield of 5% convertible half yearly. Show that the price paid by the charity for the holding of Gilt A was 60,558.

(i) Determine the nominal amount of Gilt B purchased.

(ii) Determine the price paid by the charity for the holding of Gilt C.

(iii) Assuming that these were the only transactions made and that the charity will keep its holding of Gilts B and C until redemption, show that me effective annual yield mat will be obtained by the charity on its gilt portfolio will be just in excess of 13.4%.

(iv) Ignore dealing costs and assume, where applicable, that tax paying investors pay tax as soon as it becomes due

Stock Name Coupon payment dates Last coupon date Gilt A 14% Treasury Stock 2004 22 January, 22 July 22 January 2004 Gilt B 15% Exchequer Stock 2005 27 April, 27 October 27 October 2005 Gilt C 13% Treasury Stock 2008 14 January, 14 July 14 July 2008 Stock Name Coupon payment dates Last coupon date Gilt A 14% Treasury Stock 2004 22 January, 22 July 22 January 2004 Gilt B 15% Exchequer Stock 2005 27 April, 27 October 27 October 2005 Gilt C 13% Treasury Stock 2008 14 January, 14 July 14 July 2008