Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price
ID: 2738410 • Letter: S
Question
Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of ¥1,100. The bond’s face value is ¥1,000. At the end of the year, the bond is selling at ¥1,050 and the ¥ has depreciated by 10%. What is the dollar return on the bond at the end of the year?Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of ¥1,100. The bond’s face value is ¥1,000. At the end of the year, the bond is selling at ¥1,050 and the ¥ has depreciated by 10%. What is the dollar return on the bond at the end of the year?
Explanation / Answer
Total return= [coupon+(final-inital)]/initial
coupon=1000*10%=100 yen
return in yen =(100+1050-1100)/1100
=4.55%
Fiven yen depreciated by 10%
Dollar return on bond=4.55%-10%=-5.45%