Suppose you purchase a $15-$year, AAA$-$rated Japanese bond for par that is paying an annual coupon of $4\mathrm{.}25\%.$ The bond has a face value of $10,000$ Japanese yen. The spot rate at the time of purchase is JPY$103\mathrm{.}5/$$$.$ At the end of the year, the bond is downgraded to AA and the yield increases to $6\mathrm{.}5\%.$ In addition, the Japanese yen depreciates to JPY $\frac{115\mathrm{.}25}{\text{\$}}.$

a$.$ What is the loss or gain to a Japanese investor who holds this bond for a year? What portion of this loss or gain is due to foreign exchange risk? What portion is due to interest rate risk?

$(4\mathrm{.}5$ points$)$

b$.$ What is the loss or gain to a U$.$S$.$ investor who holds this bond for a year? What portion of this loss or gain is due to foreign exchange risk? What portion is due to interest rate risk? $(4\mathrm{.}5$ points$)$