Question
6. Factors affecting international bond prices Suppose you invested in a bond that has a par value of 3,846,153.8462 British pounds, a coupon rate of
6. Factors affecting international bond prices
Suppose you invested in a bond that has a par value of 3,846,153.8462 British pounds, a coupon rate of 5 percent (with payments being made at the end of each year), and four years until its maturity. Also suppose that the value of the pound is currently $1.30.
For each of the scenarios, calculate the forecasted cash flows for years 1, 2, 3, and 4. (Hint: Do not round intermediate calculations. Round your final answers to the nearest whole dollar value.)
Scenario I (Stable Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.30 | $1.30 | $1.30 | $1.30 |
Forecasted dollar cash flows |
Scenario II (Weak Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.28 | $1.26 | $1.24 | $1.20 |
Forecasted dollar cash flows |
Scenario III (Strong Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.32 | $1.35 | $1.38 | $1.41 |
Forecasted dollar cash flows |
Based on your calculations, the least attractive foreign bonds are those that are denominated in a currency which over time.
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