Question

1. Calculate the following.
   1. Calculate the yield of a 91-day Treasury bill with a face value of $1000 and bought for a price of $950.
   2. Calculate the yield of a government of Canada consol bond that was purchased for a price of $8000 and pays 500 annually forever.
   3. Calculate the total rate of return of a stock that paid dividends of $2 per year if you bought it for $60 and sold it one year later for $73.

Answer 1

a)

Face Value = $1000

Buying Price = $950

Time period = 91 days

So Yield = (1000 - 950) /950 * 365/91 = 21.11%

b)

Initial Value = 8000

Perpetual Payment = 500

So yield(i),

8000 = 500/i

i = 6.25%

c)

Dividend = $2

Capital Gain = 73-60 = $13

So total return = $13 + $2 = $15

So return = 15/60 = 25%