Calculation Guideline: Bond Sale in China

Step 1: Calculate cost of borrowing from the bond sale in China.

Total borrowings in Chinese Yuan Renminbi (): Total U.S. dollar amount/Spot rate of Chinese Yuan Renminbi.

Total borrowings in Chinese Yuan Renminbi (): $8,000,000/.16 = 50,000,000.

Coupon payment = Total borrowing x Coupon rate.

Note: Coupon payment will be the same for four years.

Total payment to bondholders in year 4 = Coupon payment for year 4 in Chinese Yuan Renminbi () + Total borrowings in Chinese Yuan Renminbi ().

Table 2: Total Costs of Borrowing from bond sale in China.

	Year 1	Year 2	Year 3	Year 4	Total Cost (Yrs:1+2+3+4)
Payment	3,000,000.00
Exchange rate	0.15	0.16	0.14	0.17
Payment in US $	450,000.00

Calculation Guideline: Bond Sale in USA

Step 2: Calculate cost of borrowing from the bond sale in the USA.

Total borrowings in U.S. dollars ($): $8,000,000.

Coupon payment = Total borrowings x Coupon rate.

Note: Coupon payment will be the same for four years.

Total Payment to bondholders in year 4 = Coupon payment for year 4 in U.S. dollars ($) + Total borrowed amount in U.S. dollars ($).

Total costs of borrowing from bond sale in USA = Total coupon payments for 3 years + Total payment in year 4.

Step 3: Calculate gain (Loss) from bond sales in China and make decision.

Gain (Loss) from bond sales in China = Total Cost of Borrowings from bond sales in USA - Total Cost of Borrowings from bond sale in China.

Step 4: Make decision.