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Find the Value Today of a 2-Year Dual Currency Bond

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Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are: Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate)  that pays £500 per $1,000 par value at maturity. The cash flows of the bond are:   The dollar-based yield to maturity is i<sub>$</sub> = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π<sub>$</sub> = 2% in the U.S. and π<sub>£</sub> = 3% in the U.K. A) $927.62 B) $941.30 C) $965.06 D) $599.00 The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is π$ = 2% in the U.S. and π£ = 3% in the U.K.


Definitions:

Stock Split

A corporate action that increases the number of a corporation's outstanding shares by dividing each share, which in turn reduces its price but not the total market capitalization.

Total Market Value

The aggregate value of a company or an asset in the marketplace, based on current prices and the total number of shares or units outstanding.

Stock Split

A corporate action where a company divides its existing stock into multiple shares to boost the liquidity of the shares.

Shares Outstanding

The cumulative amount of a company's shares that have been approved, distributed, and acquired by shareholders and currently possessed by them.

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