Suppose you purchase a 9 - year AAA-rated Swiss bond for par that is paying an annual coupon of 6 percent. The bond has a face value of 1000 Swiss francs (SF). The spot rate at the time of purchase is SF1.40/$1. At the endof the year, the bond is downgraded to AA and the yield increases to 9 percent. In addition, the SF depreciates to SF1.65/$1. What is the loss or gain to the Australian investor from the foreign exchange risk? A. 15.96% B.12.77% C. 13.55% D. 24.15%

Maturity =9 yearsFace value = SF1000Spot rate = SF1.40/ $1 (Per Australian dollar)Yield increases =…

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 6 percent. The bond has a face value of 1000 Swiss francs (SF). The spot rate at the time of purchase is SF1.40/S1. At the end of the year, the bond is downgraded to AA and the yield increases to 9 percent. In addition, the SF depreciates to SF1.65/S1. What is the loss or gain to the Australian investor from the foreign exchange risk? A. 15.96% B .12.77% C. -13.55% D. - 24.15%

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 6 percent. The bond has a face value of 1000 Swiss francs (SF). The spot rate at the time of purchase is SF1.40/S1. At the end of the year, the bond is downgraded to AA and the yield increases to 9 percent. In addition, the SF depreciates to SF1.65/S1. What is the loss or gain to the Australian investor from the foreign exchange risk? A. 15.96% B .12.77% C. -13.55% D. - 24.15%

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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A 15-year Treasury bond is issued with face value of $1,000, paying interest of $46 per year. If market yields increase shortly after the T-bond is issued, what is the bond’s coupon rate? (Enter your answer as a percentage rounded to 1 decimal place.) Coupon rate ?%
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15years. The market's required yield to maturity on a comparable-risk bond is 11 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 16 percent or (ii) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.
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