The pension fund manager of Utterback (a U S firm) purchased German 20 year Treasury bonds instead of U S 20 year Treasury bonds The coupon rate was 2 percent lower on the German bonds Assume that the manager sold the bonds after five years The yield over the five year period was substantially more...

The German interest rates could have declined while US interest rates increased so that the value ...

The pension fund manager of Utterback (a U.S. firm) purchased German 20-year Treasury bonds instead of U.S.

Question:

The pension fund manager of Utterback (a U.S. firm) purchased German 20-year Treasury bonds instead of U.S. 20-year Treasury bonds. The rate was 2 percent lower on the German bonds. Assume that the manager sold the bonds after five years. The yield over the five-year period was substantially more than the yield it would have received on the U.S. bonds over the same five-year period. Explain how the German bonds could have generated a higher yield than the U.S. bonds for the manager, even if the is stable over this five-year period. (Assume that the price of either bond was initially equal to its respective par value). Be specific.
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...