Question

An MNC issues ten-year bonds denominated in 500,000 Philippines pesos (PHP) at par. The bonds have a coupon rate of 15 percent. If the peso remains stable at its current level of $.025 over the lifetime of the bonds and if the MNC holds the bonds until maturity, the financing cost to the MNC will be:a. ​none of the above

b. ​15.0 percent.
c. ​10.0 percent.
d. ​12.5 percent

Answer 1

Option (b) 15.0 percent

Step-by-step explanation:

Data provided in the question:

Value of the bonds issued in Philippines pesos (PHP) at par = 500,000

Coupon rate = 15 percent

Now,

In the given question the bonds are issued at par.

Also, over the life of the bonds the exchange rate remains stable and until maturity the bonds are held

Therefore,

the financing cost will be equal to the coupon rate of the bond. i.e 15%

Hence,

Option (b) 15.0 percent