Multinational finance and investment Q2 e) Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use a numerical example for illustration. f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5% yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is the yield of a French government bond?

Multinational finance and investment Q2 e) Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use a numerical example for illustration. f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5% yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is the yield of a French government bond?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 12P

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Multinational Finance & Investment Question 2 f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5% yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is the yield of a French government bond?
the spot exchange between Euro and pound is Euro1.1/Pound, and the UK Guilt returns a 0.5% yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is the yield of a French government bond?
IBM is considering having its German affiliate issue a 10-year, $100 million bond denominated in euros and pricedto yield 7.5%. Alternatively, IBM’s German unit can issuea dollar-denominated bond of the same size and maturityand carrying an interest rate of 6.7%.a. If the euro is forecast to depreciate by 1.7% annually, what is the expected dollar cost of the eurodenominated bond? How does this compare to the costof the dollar bond?b. At what rate of euro depreciation will the dollar cost ofthe euro-denominated bond equal the dollar cost of thedollar-denominated bond?c. Suppose IBM’s German unit faces a 35% corporate taxrate. What is the expected after-tax dollar cost of theeuro-denominated bond?
a. The spot price of the British pound is currently $1.50. If the risk-free interest rate on 1-year government bonds is 1% in the United States and 2% in the United Kingdom, what must be the forward price of the pound for delivery one year from now?b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to part (a)? Give a numerical example.
Assume that interest rate parity holds. In the spot market1 Japanese yen = $0.009144, while in the 90-day forward market 1 Japanese yen = $0.009184. In Japan, 90-day risk-free securities yield 2%. What is the yield on 90-day riskfreesecurities in the United States?
Assume that interest rate parity holds and that the 90-day risk-free securities yield is 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40 (1.4 dollars per euro). What is the 90-day forward rate? rh 1.25% 5.0% rf 1.33% 5.3% Euro 0.7143 $1.40 Spot Rate Forward Rate 1.943396 Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
PIMCO gives the following example of an Inflation Linked Bond (ILB), called a Treasury Inflation Protected Security (TIPS) in the US. "How do ILBs work? An ILB’s explicit link to a nationally-recognized inflation measure means that any increase in price levels directly translates into higher principal values. As a hypothetical example, consider a $1,000 20-year U.S. TIPS with a 2.5% coupon (1.25% on semiannual basis), and an inflation rate of 4%. The principal on the TIPS note will adjust upward on a daily basis to account for the 4% inflation rate. At maturity, the principal value will be $2,208 (4% per year, compounded semiannually). Additionally, while the coupon rate remains fixed at 2.5%, the dollar value of each interest payment will rise, as the coupon will be paid on the inflation-adjusted principal value. The first semiannual coupon of 1.25% paid on the inflation-adjusted principal of $1,020 is $12.75, while the final semiannual interest payment will be 1.25% of $2,208, which…
A bank’s position in OTC options on the dollar-euro exchange rate with a current Delta of -400 and a current Vega of 771. The exchange rate (dollars per euro) is 1.16 and the volatility of the exchange rate is 23.8% per annum. If the volatility of the exchange rate was to suddenly change to 27.4% per annum, what would be your best estimate of the change in the value of the bank’s position in OTC options? Your answer should be a number without any currency sign and if the change is a decrease then there should be negative sign at the front (i.e., if the value goes up by $100 you should write 100, but if it goes down by $100 you should write -100).
22) The current exchange rate is 0.85 euros per dollar, but you believe the dollar will decline to 0.80 euros per dollar. If a euro-denominated bond is yielding 2%, what return do you expect in U.S. dollars?
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF 1.6 million, a one-year period, an initial spot rate of SF 1.4600/$, a 4.934% cost of debt, and a 38% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was: a. 1.4600SF/$ b. 1.4000SF/$ c. 1.3350SF/$ d. 1.5730SF/$
Q3: Citibank has developed a way of creating a zero-coupon bond, called a strip, from the coupon bearing Treasury bond by selling each of cash flows underlying the coupon-bearing bond as a separate security. You as a treasurer working for Citibank, have a relatively simple trading strategy. You would buy strips and sell them in the forward market. Suppose for example, that the 3-month interest rate is 4% per annum and the spot price of a strip is $70. What will be the 3-month forward price? Assuming that actual forward price is 72, formulate an arbitrage strategy.
In the United States. The date is 26 July 2022. You decidethat the market has under-estimated the yield on long term Treasurybonds. You observe the following bond (in the picture). Describe how you would use this bond to trade in order to profit from your beliefs.