Question
Suppose you invested in a bond that has a par value of 3,076,923.0769 British pounds, a coupon rate of 5 percent (with payments being made
Suppose you invested in a bond that has a par value of 3,076,923.0769 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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