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On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented
On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented a promise to pay $100 at the maturity date on February 2, 2022, but the investor would receive nothing until then. The value of the coupon showed as $76.14 on the investor's screen. This means that the investor was giving up $76.14 on February 2, 2016, in exchange for $100 to be received just less than six years later. a. Based upon the $76.14 price, what rate was the yield on the Province of Ontario bond? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Rate of return 4.67 % b. Suppose that on February 2, 2017, the security's price was $83.00. If an investor had purchased it for $76.14 a year earlier and sold it on this day, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Annual rate of return 6.52 % % c. If an investor had purchased the security at the market price of $83.00 on February 2, 2017, and held it until it matured, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Annual rate of return 4.3 %
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