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Suppose you (U.S. investor) purchase a 10-year, AA-rated Swiss bond for par that is paying an annual coupon of 9 percent. The bond has a
Suppose you (U.S. investor) purchase a 10-year, AA-rated Swiss bond for par that is paying an annual coupon of 9 percent. The bond has a face value of 1,000 Swiss Francs (SFr). The spot rate at the time of purchase is SFr1.05/$. At the end of the year 1, the bond is downgraded to A-rated and the yield increases to 9.500% annual compounding. In addition, the Swiss Francs appreciates to SFr1.15/$. Assume that a U.S. investor holds this bond for one year and sells it in the market at the end of year 1. What is the overall gain / loss in U.S. dollars for the U.S. investor at the end of year 1 (t = 1 year)? (Roundoff your answer to four decimal places, in order to get as accurate answer as possible on Canvas. If your answer is -$1.2345, loss of $1.2345, then type your answer as -1.2345.)
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