Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 February 2, 2022, but the investor would receive nothing until then. The value of the coupon showed as $76.04 on the investor's screen. This means that the investor was giving up $76.04 on February 2, 2016, in exchange for $100 to be received just less than six years later. a. Based upon the $76.04 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 4.671% b. Suppose that on February 2, 2017, the security's price was $81.00. If an investor had purchased it for $76.04 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 $81.00 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 4.30%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started