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

Question:

Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 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 10 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?

b. What is the loss or gain to a U.S. investor who holds this bond for a year?

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... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...