Reference no: EM133115122

Question - a) A bond issued by ENBRIDGE INC on September 2, 1999 was purchased on March 8, 2022 at the 103 index. This bond has a coupon rate of 5.75% per annum compounded semi-annually, with coupons due on September 2 and March 2. The maturity date is September 2, 2039 and the redemption value is at par. Calculate the current yield, the yield to maturity and the effective annual yield of the bond? Please present all your calculations.

b) For this same bond in (a), if the current inflation rate is 4.5%, calculate the approximate real rate of return then the exact real rate? Please present all your calculations.

c) HYDRO ONE INC wishes to issue a new series of bonds on the market to finance a major expansion project. The maturity would be 20 years and to establish a competitive coupon rate, we want to offer a yield 20% higher than the yield of the last series of bonds issued. This latter series has a face value of $1,000 and a coupon rate of 6% (paid semi-annually). It was issued on January 5, 2015 with a 30-year maturity on January 5, 2045. The bond is selling as of today, February 15, 2022, at $1,086. What should be the coupon rate (paid semi-annually) of the new issue assuming that the bond can be bought on its date of issue at a discount, ie at the index 98.5? Please present all your calculations.