Suppose you invested in a bond that has a par value of 4,000,000 British pounds, a coupon
Fantastic news! We've Found the answer you've been seeking!
Question:
Suppose you invested in a bond that has a par value of 4,000,000 British pounds, a coupon rate of 10 percent (with payments being made at the end of each year), and four years until its maturity. Also suppose that the value of the pound is currently $1.50.
For each of the scenarios, calculate the forecasted cash flows for years 1, 2, 3, and 4.
Scenario I (Stable Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.50 | $1.50 | $1.50 | $1.50 |
Forecasted dollar cash flows |
Scenario II (Weak Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.48 | $1.46 | $1.44 | $1.40 |
Forecasted dollar cash flows |
Scenario III (Strong Pound) | Year 1 | Year 2 | Year 3 | Year 4 |
---|---|---|---|---|
Forecasted value of the pound | $1.52 | $1.55 | $1.58 | $1.61 |
Forecasted dollar cash flows |
Based on your calculations, the least attractive foreign bonds are those that are denominated in a currency which _ over time.
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
Posted Date: