Tsar Alexander's Gold Loan. The Russian government of Tsar Alexander III issued a 100-year bearer bond 1894 (one of the coupon payments and the bond itself are reproduced here |). A bearer bond is a security sold to an investor in which the bearer of the bond, the holder, is entitled to receive an interest payment (the coupon) at regularly scheduled dates as listed on the bond. There is no record kept by any authority of who owns the bond; the bearer is the implicit owner. There is also no record of who receives the coupon payments, if the coupons are redeemed at the recommended banks and cities of the time. This allows the investor to earn the interest without tax authorities knowing the investor's identity. These tax-free returns allowed the bond issuer, in this case the tsar, to raise capital at lower interest rates. This bond paid interest on a quarterly basis. As noted on the coupon and on the bond itself, there were explicit dates on each individual coupon as to when it could be redeemed. In order for the investor to redeem his or her coupons for cash payment, the bond contained a sheet of coupons that were numbered and dated. These individual coupons were clipped from the sheet and taken to one of the listed banks around the world to receive the interest payment. This bond listed the cities and the amount of the interest payment in local currency terms. The 118th coupon in the series is reproduced below. This 118th coupon, which the bearer could present for payment beginning June 18, 1923, indicates what payment the bearer would receive depending on which currency the bearer is receiving payment. This obviously implies a set of fixed exchange rates in effect on the date of issuance (1894). Use the coupon above and the bond on the next page to answer the following questions. a. Given the value of the total bond as originally issued in French francs, German marks, British pounds, Dutch florins, and U.S. dollars, calculate the value of each coupon (interest) payment by currency on both an annual and quarterly basis? (Round to four decimal places.) Annual Annual Quarterly Coupon Coupon Coupon (4% of Par) Currency Par Value Rate (%) (coupon/4) As described on the coupon In St. Petersburg 1.25 Roubles Russian gold roubles 125.00 4.000 b. Create a chart that shows the fixed rate of exchange implied by the coupon for the six different currencies. The chart or matrix of implied exchange rates is found by dividing the par values by currency. For example, French francs/Russian roubles is found by dividing Rol giving an implied exchange rate of Rb! D/FF. by FF Russian French British German Dutch US gold roubles francs pounds marks florins gold dollars Total Bond Issuance Currency (per rouble) by Currency Currency Russian gold roubles French francs All other currencies RUSSIAN4% GOLD LOAN, SIXTH ISSUE, 1894 Talon of the Bond of 187 Rouble 50 Cop. (1/Rouble = 1/15 Imper.) 118" Coupon of the Bond, due 18 June/1 July 1923: in Paris 5 Francs, in Berlin 4 Mark 4 Pf., in London 3 Schill. 11 % P., in Amsterdam 2 Flor. 39 C., in New York 96 1/4 Cents. Valid for 10 years. BOND R. 125. of one hundred and twenty five Gold Roubles = 500 Francs = 404 German Marks = 19 Pounds Sterling 15 shill . 6 pence = 239 Dutch Flor. = 96, 2s United States Gold Dollars, inscribed into the Great Book of the Public Debt at the Office of the Imperial Commission of the Sinking Fund to Bearer. The Bear of this Bond is entitled to the amount of one hundred and twenty five Gold Roubles bearing interest at FOUR per cent per annum until its redemption by drawing. This Bond is for ever exempt from every present and future Russian Tax whatever. The interest will be paid against the coupons every three months viz on the 20 March/P* April, 19* June/l" July, 19 September/l" October, 20 December l" January of each year, at the choice of the Bearer: in ST-PETERSBURG: at the State Bank, in Gold Roubles or Credit Roubles, at the rate of exchange of the day; in PARIS: at the Banque de Paris et des Pays-Bas, at the Crdit Lyonnais, at the Comptoir National d'Escompte de Paris, at the office of the Russian Bank for Foreign Trade and at Mess** Hottingeur & C, in Francs, in LONDON at the Russian Bank for Foreign Trade (London-branch), in Pounds Sterling in BERLIN at Messa Mendelssohn & C in German Marks in AMSTERDAM: at Mess" Lippmann, Rosenthal & C in Dutch Forins in NEW-YORK: at Mess" Baring, Magoun & C, in Gold Dollars. These Bonds will be redeemed at pur, within 81 years by drawings by lot, which will take place at the Imperial Commission of the Sinking Fund half yearly, the 20 Marchist April and 19 September 1st October, beginning from 19 September/ist October 1894. To the redemption of this Loan will be applied every half year 0.084281% of the nominal amount of the original issue together with 2% on the amount of the Bonds previously drawn. Tsar Alexander's Gold Loan. The Russian government of Tsar Alexander III issued a 100-year bearer bond 1894 (one of the coupon payments and the bond itself are reproduced here |). A bearer bond is a security sold to an investor in which the bearer of the bond, the holder, is entitled to receive an interest payment (the coupon) at regularly scheduled dates as listed on the bond. There is no record kept by any authority of who owns the bond; the bearer is the implicit owner. There is also no record of who receives the coupon payments, if the coupons are redeemed at the recommended banks and cities of the time. This allows the investor to earn the interest without tax authorities knowing the investor's identity. These tax-free returns allowed the bond issuer, in this case the tsar, to raise capital at lower interest rates. This bond paid interest on a quarterly basis. As noted on the coupon and on the bond itself, there were explicit dates on each individual coupon as to when it could be redeemed. In order for the investor to redeem his or her coupons for cash payment, the bond contained a sheet of coupons that were numbered and dated. These individual coupons were clipped from the sheet and taken to one of the listed banks around the world to receive the interest payment. This bond listed the cities and the amount of the interest payment in local currency terms. The 118th coupon in the series is reproduced below. This 118th coupon, which the bearer could present for payment beginning June 18, 1923, indicates what payment the bearer would receive depending on which currency the bearer is receiving payment. This obviously implies a set of fixed exchange rates in effect on the date of issuance (1894). Use the coupon above and the bond on the next page to answer the following questions. a. Given the value of the total bond as originally issued in French francs, German marks, British pounds, Dutch florins, and U.S. dollars, calculate the value of each coupon (interest) payment by currency on both an annual and quarterly basis? (Round to four decimal places.) Annual Annual Quarterly Coupon Coupon Coupon (4% of Par) Currency Par Value Rate (%) (coupon/4) As described on the coupon In St. Petersburg 1.25 Roubles Russian gold roubles 125.00 4.000 b. Create a chart that shows the fixed rate of exchange implied by the coupon for the six different currencies. The chart or matrix of implied exchange rates is found by dividing the par values by currency. For example, French francs/Russian roubles is found by dividing Rol giving an implied exchange rate of Rb! D/FF. by FF Russian French British German Dutch US gold roubles francs pounds marks florins gold dollars Total Bond Issuance Currency (per rouble) by Currency Currency Russian gold roubles French francs All other currencies RUSSIAN4% GOLD LOAN, SIXTH ISSUE, 1894 Talon of the Bond of 187 Rouble 50 Cop. (1/Rouble = 1/15 Imper.) 118" Coupon of the Bond, due 18 June/1 July 1923: in Paris 5 Francs, in Berlin 4 Mark 4 Pf., in London 3 Schill. 11 % P., in Amsterdam 2 Flor. 39 C., in New York 96 1/4 Cents. Valid for 10 years. BOND R. 125. of one hundred and twenty five Gold Roubles = 500 Francs = 404 German Marks = 19 Pounds Sterling 15 shill . 6 pence = 239 Dutch Flor. = 96, 2s United States Gold Dollars, inscribed into the Great Book of the Public Debt at the Office of the Imperial Commission of the Sinking Fund to Bearer. The Bear of this Bond is entitled to the amount of one hundred and twenty five Gold Roubles bearing interest at FOUR per cent per annum until its redemption by drawing. This Bond is for ever exempt from every present and future Russian Tax whatever. The interest will be paid against the coupons every three months viz on the 20 March/P* April, 19* June/l" July, 19 September/l" October, 20 December l" January of each year, at the choice of the Bearer: in ST-PETERSBURG: at the State Bank, in Gold Roubles or Credit Roubles, at the rate of exchange of the day; in PARIS: at the Banque de Paris et des Pays-Bas, at the Crdit Lyonnais, at the Comptoir National d'Escompte de Paris, at the office of the Russian Bank for Foreign Trade and at Mess** Hottingeur & C, in Francs, in LONDON at the Russian Bank for Foreign Trade (London-branch), in Pounds Sterling in BERLIN at Messa Mendelssohn & C in German Marks in AMSTERDAM: at Mess" Lippmann, Rosenthal & C in Dutch Forins in NEW-YORK: at Mess" Baring, Magoun & C, in Gold Dollars. These Bonds will be redeemed at pur, within 81 years by drawings by lot, which will take place at the Imperial Commission of the Sinking Fund half yearly, the 20 Marchist April and 19 September 1st October, beginning from 19 September/ist October 1894. To the redemption of this Loan will be applied every half year 0.084281% of the nominal amount of the original issue together with 2% on the amount of the Bonds previously drawn