Question

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 2,600 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?

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

Answer 1

The answer and procedures of the exercise are attached in the following archives.

Step-by-step explanation:

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.