On February 2, 2013, an investor held some Province of Ontario stripped coupons in a selfadministered RRSP
Question:
On February 2, 2013, an investor held some Province of Ontario stripped coupons in a selfadministered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented a promise to pay $100 at the maturity date on January 13, 2019 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, 2013 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?
b. Suppose that on February 2, 2014, 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?
c. If an investor had purchased the security at market on February 2, 2014, and held it until it matured, what annual rate of return would she have earned?
CouponA coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield