Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon...

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 6 percent and has a face value of 1,400 Swiss francs (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 8 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1. a. What is the loss or gain to a Swiss investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) loss to Swiss investor %?

b. What is the loss or gain to a U.S. investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) gain to U.S. investor %?

Expert Solution

Cost for Swiss investor		1400Sf

Bond value after degrading is the present value of future cashflows
in Swss franc
1 year lapsed, so remaining period is 8 years the and the yeild increased to 8%, so discount rate will be 8%
year	cash flow	discount factor@8%	Present value
1	84.00	0.9259259259259260	77.77777777777780
2	84.00	0.8573388203017830	72.01646090534980
3	84.00	0.7938322410201690	66.68190824569420
4	84.00	0.7350298527964530	61.74250763490210
5	84.00	0.6805831970337530	57.16898855083520
6	84.00	0.6301696268831050	52.93424865818080
7	84.00	0.5834903952621340	49.01319320201920
8	1484.00	0.5402688845019760	801.75902460093200
		Value of bond in Sf	1239.09410957569000
			1239.09411

Profit = (coupon + sale value - purchase value) / purchase value
profit for Swiss investor = (84 + 1239.09410957569 - 1400) / 1400 =			-0.0549327788745071
		profit = -5.49327788745071%

rounded to 2 decimal places =		-5.49%
which means loss of 5.49%

	Cast of US investor = 1400 X 0.66667		$933.33800
sale value for investor = 1239.09410957569 X $0.74074			$917.84657072709700

Profit = (coupon + sale value - purchase value) / purchase value
		Coupon = 84 X $0.74074	$62.22216000000000
profit=($62.22216+$917.846570727097-$933.338000)/$933.338000			0.0500683897228
profit = 0.0500683897227982 or 500683897227982%
profit Rounded to 2 decimal points		5.01%

Please rate the answer maximum if you get the answer and satisfied. If you remains any doubts on this answer, please leave a comment and it will be cleared.

thank you.....

jeff jeffy answered 2 years ago

Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon...

Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon of 9 percent and has a face value of 1,000 British Pounds (£). The spot rate is US$1.105 for £. At the end of the year, the bond is downgraded to AA and the yield increases to 11 percent. In addition, the new spot rate becomes US$0.985 for £. What is the loss or gain to a U.S. investor who holds this bond for...

Suppose that you purchase a Baa rated $1000 semi-annual coupon bond with a 7.5% coupon rate...

Suppose that you purchase a Baa rated $1000 semi-annual coupon bond with a 7.5% coupon rate and a 3-year maturity yielding 5.623%, what would the price be?

Suppose you purchase a 30-year Treasury bond with a 7% annual coupon, initially trading at par....

Suppose you purchase a 30-year Treasury bond with a 7% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 8% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the...

Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100...

Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100 that pays interest semi-annually. The yield to maturity for this bond is 10% on a bond-equivalent yield basis. What is the coupon interest, capital gain/loss and reinvestment income associated with this bond over its 6-year life? Assume that the reinvestment rate is equal to the yield to maturity.

A 9-year maturity, AAA rated corporate bond has a 6% coupon rate. The bond's promised yield...

A 9-year maturity, AAA rated corporate bond has a 6% coupon rate. The bond's promised yield is currently 5.75%. The bond pays interest semiannually. What is the bond's duration? What is the bond's convexity? If promised yields decrease to 4.85% what is the bond's predicted new price, excluding convexity? What is the bond's predicted new price including convexity? If promised yields increase to 6.5% what is the bond's predicted new price, excluding convexity? What is the bond's predicted new price...

1.An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and...

1.An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and before the first coupon is received, interest rates increase to 8.9% (assume a flat spot rate curve). The investor sells the bond after 7 years (right after receiving the 7th coupon payment). What is this investor's realized annual return in these 7 years? Assume annual compounding, and that interest rates remain at 8.9% over the entire holding period. 2.An investor with an investment horizon...

you own a 15 - year 100 par bond. The coupon rate is an annual 9%...

you own a 15 - year 100 par bond. The coupon rate is an annual 9% payable annually. The price of the bond is 95.50 D. Calculate the approximate change in price of the bond if the yield rate increas by 0.5% using First Order Macaulay Approximation E. Calculate the approximate change in price of the bond if the yield rate increase by 0.5% using First Order Modified Approximation F. Calculate the exact change in price of the bond

Suppose that you purchased a Baa rated $1000 annual coupon bond with an 6.6 % coupon...

Suppose that you purchased a Baa rated $1000 annual coupon bond with an 6.6 % coupon rate and a 4-year maturity at 8 % above par value. What would the current yield (in %) be at time of purchase (4 digits)?

Suppose that you purchased a A rated $5000 annual coupon bond with an 6.8% coupon rate...

Suppose that you purchased a A rated $5000 annual coupon bond with an 6.8% coupon rate and a 18-year maturity at par value. The current rate on 18-year US treasuries is 3%. Two years later, you look in the newspaper, and find that the yield on comparable debt is 7.223%, how much is the bond currently worth?

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year...

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year semiannually when the market interest rate is only 5% per half-year. The bond has three years until maturity. a. Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places.) b. What is the total (six-month) rate of return on the bond? (Do not round intermediate calculations. Round your answer to the...

Question