On December 31, 2006 you decided to buy a 50-year Government of Canada bond. The bond...

 

Transcribed Image Text:

On December 31", 2006 you decided to buy a 50-year Government of Canada bond. The bond had a face value of $10,000,000. The coupon rate on the bond was 6.20%. Coupons were paid quarterly. On December 31", 2006 the yield to maturity on Government of Canada bonds was 7.40% per year. (The term structure of interest rates was flat.) After holding the bond for 16 years you decided to sell the bond on December 31, 2022. Prior to selling the bond you received the December 31, 2022 coupon payment. On December 31, 2022 the yield to maturity on Government of Canada bonds had decreased to 4.30% per year. (The term structure of interest rates was flat.) a) How much did you pay for the bond on December 31st, 2006? b) How much did you sell the bond for on December 31st, 2022? c) What was the effective periodic rate of return that you earned on your investment during the 16 years? d) What was the effective annual rate of return that you earned on your investment during the 16 years? On December 31", 2006 you decided to buy a 50-year Government of Canada bond. The bond had a face value of $10,000,000. The coupon rate on the bond was 6.20%. Coupons were paid quarterly. On December 31", 2006 the yield to maturity on Government of Canada bonds was 7.40% per year. (The term structure of interest rates was flat.) After holding the bond for 16 years you decided to sell the bond on December 31, 2022. Prior to selling the bond you received the December 31, 2022 coupon payment. On December 31, 2022 the yield to maturity on Government of Canada bonds had decreased to 4.30% per year. (The term structure of interest rates was flat.) a) How much did you pay for the bond on December 31st, 2006? b) How much did you sell the bond for on December 31st, 2022? c) What was the effective periodic rate of return that you earned on your investment during the 16 years? d) What was the effective annual rate of return that you earned on your investment during the 16 years?

Answer rating: 100% (QA)

a To calculate the price of the bond on December 31st 2006 we need to use the formula P C r 1 1 1 rn F 1 rn where P price of the bond C coupon payment ... View the full answer