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Suppose you (U.S. investor) purchase a 5-year, AA-rated Euro bond for par that is paying an annual coupon at the rate equal to 8.000 percent.

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Suppose you (U.S. investor) purchase a 5-year, AA-rated Euro bond for par that is paying an annual coupon at the rate equal to 8.000 percent. The bond has a face value of 1,000 Euros. The spot exchange rate at the time of purchase is USD1.150/EUR. At the end of the year 1 , the bond is upgraded to AAA-rated and the yield changes to 7.500% per annum continuous compounding. In addition due to changes in macroeconomic environment, the exchange rate also changed to USD1.250/EUR. Assume that a U.S. investor holds this bond for one year and sells it in the market at the end of year 1. EUR is the abbreviation for Euro and USD is the abbreviation for U.S. dollar. 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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