(Answered) With interest rates so low some investors have considered

Finance

With interest rates so low, some investors have considered replacing bond investments with stable dividend paying stocks. First we’ll look at a bond.

a. ONT 3.5 June/2/2043 is a bond issued by the Province of Ontario. The 3.5% coupon is paid semi-annually on June 2 and December 2 (i.e. $ 1.75 per $100). Set up a column of dates and cash flows and manually discount them by a rate that you can adjust. (Pretend it is June 2 right now so we don’t have to deal with accrued)

b. What discount rate gets you a Present Value close t o the trading price of $106? (Guess and check)

c. Check your answer with the XNPV function. (Put a 0 cash flow for June 2, 2015 to hack the formula).

d. What is the present value of the final $101.75 cash flow (that is 28 years from now)?

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Financial Management, Finance

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