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)?