9. A 3-year dual currency AA rated bond (Euro-USD) pays a 5% annual coupon in Euros (on a par value of a 1000 Euros). The principal repaid will be US $ 1350. The zero coupon yield curves for 1,2 and 3 year maturity AA rated Euro denominated bonds and AA rated US$ denominated bonds are given below. The current spot rate is $ 1.35/Euro. Euro denominated US $ denominated 1 year 2.5% 3.0% 2 year 3.0% 3.5% 3 year 3.5% 4.0% How much would you be willing to pay today in Euros for this bond (considering both coupons and principal payment)? Ans: Euros 1030
9. A 3-year dual currency AA rated bond (Euro-USD) pays a 5% annual coupon in Euros (on a par value of a 1000 Euros). The principal repaid will be US $ 1350. The zero coupon yield curves for 1,2 and 3 year maturity AA rated Euro denominated bonds and AA rated US$ denominated bonds are given below. The current spot rate is $ 1.35/Euro. Euro denominated US $ denominated 1 year 2.5% 3.0% 2 year 3.0% 3.5% 3 year 3.5% 4.0% How much would you be willing to pay today in Euros for this bond (considering both coupons and principal payment)? Ans: Euros 1030
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:9. A 3-year dual currency AA rated bond (Euro-USD) pays a 5% annual coupon in Euros (on a par
value of a 1000 Euros). The principal repaid will be US $ 1350. The zero coupon yield curves for
1,2 and 3 year maturity AA rated Euro denominated bonds and AA rated US$ denominated bonds
are given below. The current spot rate is $ 1.35/Euro.
Euro
denominated
US
$
denominated
1 year
2.5%
3.0%
A zero-coupon
bond
US$
denominated
2 year
3.0%
1 year
3.5%
How much would you be willing to pay today in Euros for this bond (considering both coupons
and principal payment)?
Ans: Euros 1030
3.0%
10. A 3-year A rated USD denominated bond pays a 4% annual coupon (on a par value of a 1000
USD). The zero-coupon yield curve for 1,2 and 3 year maturity A rated US$ denominated bonds is
given below.
3 year
3.5%
2 year
4.0%
3.5%
3 year
4.0%
How much would you be willing to pay today for this bond (considering both coupons and
principal payment)?
Ans: USD 1000.73
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