Question
On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at Scotia McLeod, an investment dealer. Each coupon
On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at Scotia McLeod, an investment dealer. Each coupon represented a promise to pay $100 at the maturity date on January 13, 2022, but the investor would receive nothing until then. The value of the coupon showed as $82.14 on the investor's screen. This means that the investor was giving up $82.14 on February 2, 2016, in exchange for $100 to be received just less than six years later. A. Based upon the $82.14 price, what rate was the yield on the Province of Ontario bond? B. Suppose that on February 2, 2017, the security's price was $92.00. If an investor had purchased for it $82.14 a year earlier and sold it on this day, what annual rate of return would she have earned? C. if an investor had purchased the security at the market price of $62.00 on February 2, 2017, and held it until it matured, what annual rate of return would she have earned?
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