The Glover Scholastic Ald Foundation has received a 20 million global government bond portfolio from a Greek donor. This bond portfolio will be held in euros and managed separately from Glover's existing U.S. dollar-denominated assets. Although the bond portfolio is currently unhedged, the portfolio manager, Raine Sofia, Is Investigating various alternatives to hedge the currency risk of the portfolio. The bond portfollo's current allocation and the relevant country performance data are given in Exhibits 1 and 2. Historical correlations for the currencies being considered by Sofia are given in Exhibit 3 Sofia expects that future returns and correlations will be approximately equal to those given in Exhibits 2 and 3 Exhibit 1. Glover Scholastic Aid Foundation Current Allocation Global Government Bond Portfollo Allocation Maturity Country (X) (years) Greece 15 5 40 5 20 10 10 5 C D 15 10 Exhibit 2. Country Performance Data (in local currency) Liquidity of 90-day 5-year Excess Bond Return Unhedged Currency 10-year Excess Bond Cash Return Currency Forward (3) Return (3) Contracts Country Greece A Return (3) 2.0 2.0 1.5 Good 1.0 2,8 3.0 -4.0 Good 4.0 0.5 1.0 2.0 Fair 3.0 1.0 2.0 -2.0 Fair D 2.6 1.4 2.4 -3.0 Good Calculate the expected total annual return (euro-based) of the current bond portfollo if Sofia decides to leave the currency risk unhedged. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Expected total annual return 3.67 % The Glover Scholastic Ald Foundation has received a 20 million global government bond portfolio from a Greek donor. This bond portfolio will be held in euros and managed separately from Glover's existing U.S. dollar-denominated assets. Although the bond portfolio is currently unhedged, the portfolio manager, Raine Sofia, Is Investigating various alternatives to hedge the currency risk of the portfolio. The bond portfollo's current allocation and the relevant country performance data are given in Exhibits 1 and 2. Historical correlations for the currencies being considered by Sofia are given in Exhibit 3 Sofia expects that future returns and correlations will be approximately equal to those given in Exhibits 2 and 3 Exhibit 1. Glover Scholastic Aid Foundation Current Allocation Global Government Bond Portfollo Allocation Maturity Country (X) (years) Greece 15 5 40 5 20 10 10 5 C D 15 10 Exhibit 2. Country Performance Data (in local currency) Liquidity of 90-day 5-year Excess Bond Return Unhedged Currency 10-year Excess Bond Cash Return Currency Forward (3) Return (3) Contracts Country Greece A Return (3) 2.0 2.0 1.5 Good 1.0 2,8 3.0 -4.0 Good 4.0 0.5 1.0 2.0 Fair 3.0 1.0 2.0 -2.0 Fair D 2.6 1.4 2.4 -3.0 Good Calculate the expected total annual return (euro-based) of the current bond portfollo if Sofia decides to leave the currency risk unhedged. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. Expected total annual return 3.67 %
