Question
Edit question Edit question A Canadian mutual fund buys today newly issued 1,000 euro - floating rate notes, FRNs, at the par value of 10,000
Edit question Edit question A Canadian mutual fund buys today newly issued 1,000 euro - floating rate notes, FRNs, at the par value of 10,000 per FRN. The term-to-maturity of each FRN is 4 years. The annual coupon rate, C, of the FRNs is set as: C = Beginning of the period LIBOR + .015 The interest rate reset period is one year. The currently prevailing LIBOR is 2.5% per annum. The current spot exchange rate between C$ and is: C $1.80 per and the expected spot exchange rate after 6 months is: C $1.85 per . After 6 months the expected price per FRN is 10,100 Suppose that the Canadian mutual fund is planning to sell 1,000 FRNs after 6 months. Answer the following questions:
a. Calculate the expected rate of return the Canadian mutual fund will earn over 6 months.
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