You are helping your aunt decide how to invest her savings. It is November 2018. Her time horizon is 5 to 10 years and she has CA $50,000 to invest. Both, the safety of her Capital, as well as, on-going Income are important to her. She asks you about Inflation. Today, inflation is relatively tamed; however, some experts expect inflation to rise slightly during the next 5 years. She wishes to invest in a solid well run company. TransCanada Corporation of Calgary is her preferred focus. She liked the company since she had worked there as an intern, one summer many years ago. You wonder if she should invest in the firms Bond or Common Stock.

Analysis:

Part A - TCPL Bond: Here is some information you have gathered: You have identified 2 TransCanada Bonds. The quotes read as follows:

TRANSCANADA PPL 5.1 11/06/2023 Ask Price: 112.85

TRANCANADA PPL 3.65 11/25/2026 Ask Price: 107.47

Analyze and Solve:

1. What is the current price of each bond? Hint: bond prices are quoted as percentage of face value (page184).

2. What is the price at maturity of each bond?

3. What is the bond coupon rate for each bond?

4. What is semi-annual coupon payment for each bond?

5. How many years to maturity for each bond?

6. How many periods for maturity for each bond?

7. What is the Yield-to-maturity for each bond?

8. What is the Annual rate APR?

9. What is the Annual Income from the Bonds

10. Which bond is a better investment for your aunt.