Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 5 percent and has a face value of 1,900 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 7 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))
b. What is the loss or gain to a U.S. investor who holds this bond for a year? %
Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 5 percent and has a face value of 1,900 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 7 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))
b. What is the loss or gain to a U.S. investor who holds this bond for a year? %
Related questions
| A $1,000 par value bond was issued five years ago at a coupon rate of 12 percent. It currently has 7 years remaining to maturity. Interest rates on similar debt obligations are now 14 percent. Use Appendix B andAppendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. |
| a. | Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Current bond price | $ |
| b. | If Mr. Robinson initially bought the bond at par value, what is his percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.) |
| Percentage | (Click to select)LossGain | % |
| c. | Now assume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will be her percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.) |
| Percentage | (Click to select)LossGain | % |
| d. | Why is the percentage gain larger than the percentage loss when the same dollar amounts are involved in parts b and c? | ||||
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| Sunburn Sunscreen has a zero coupon bond issue outstanding with a $26,000 face value that matures in one year. The current market value of the firm's assets is $27,600. The standard deviation of the return on the firm's assets is 40 percent per year. |
| Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $36,000 that matures in one year. The current market value of the firm's assets is $40,400. The standard deviation of the return on the firm's assets is 46 percent per year. |
| Suppose Sunburn Sunscreen and Frostbite Thermalwear have decided to merge. Because the two companies have seasonal sales, the combined firmâs return on assets will have a standard deviation of 21 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. |
| a-1 | What is the combined value of equity in the two existing companies? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Equity | $ |
| a-2 | What is the combined value of debt in the two existing companies? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Debt | $ |
| b-1 | What is the value of the new firmâs equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Equity | $ |
| b-2 | What is the value of the new firmâs debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Debt | $ |
| c-1 | What was the gain or loss for shareholders? (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Gain/Loss | $ |
| c-2 | What was the gain or loss for bondholders? (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Gain/Loss |
