Red Electrica Espaa SA (E.REE) is refinancing its bank loans by issuing Eurobonds to investors. You are

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Red Electrica España SA (E.REE) is refinancing its bank loans by issuing Eurobonds to investors. You are considering buying $8,000 worth of these bonds, which will yield 7%. You are also looking at a U.S. bond with similar risk that will yield 4%. 

You expect that interest rates will not change over the course of the next year, after which time you will sell the bonds you purchase now.
a. How much will you make on each bond if you buy it, hold it for one year, and then sell it for $8,000 (or the Eurodollar equivalent)?
b. Assume the dollar/euro exchange rate goes from 1.3 to 1.0. How much will this currency changes affect the proceeds from the Eurobond?

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Fundamentals Of Investing

ISBN: 9780135175217

14th Edition

Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk

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