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Suppose you (U.S investor) purchase a 5-year, M-rated Euro bond for par that is paying an annual coupon at the rate equal to 8 percent.
Suppose you (U.S investor) purchase a 5-year, M-rated Euro bond for par that is paying an annual coupon at the rate equal to 8 percent. The bond has a face value of 1,000 Euros. The spot exchange rate at the time of purchase is USD1.15/EUR. At the end of the year 1 , the bond is upgraded to AMA-rated and the yield changes to 7.5% per annum continuous compounding in addition due to changes in macroeconomic environment, the exchange rate also changed to USD1.25IEUR. Assume that a US 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 US. dollars for the US. 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 $12345, then type your answer as -1.2345 .)
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