Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 Swiss francs (SF). The spot rate is US$0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 10 percent. In addition, the SF depreciates to US$0.74074 for SF1. (LG 20-1)

a. What is the loss or gain to a Swiss investor who holds this bond for a year?

b. What is the loss or gain to a U.S. investor who holds this bond for a year?

AppendixLO1