Reference no: EM132814686

Question - On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at ScotiaMcLeod, 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 $76.24 on the investor's screen. This means that the investor was giving up $76.24 on February 2, 2016, in exchange for $100 to be received just less than six years later.

Required -

a. Based upon the $76.24 price, what rate was the yield on the Province of Ontario bond?

b. Suppose that on February 2, 2017, the security's price was $85.00. If an investor had purchased it for $76.24 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 $85.00 on February 2, 2017, and held it until it matured, what annual rate of return would she have earned?

d. If you expect to receive $14,500 at graduation in two years. You plan on investing it at 11% until you have $84,000. How long will you wait from now?