Find the Value of a Three-Year Dual Currency Bond with Annual

question 90

Multiple Choice

Find the value of a three-year dual currency bond with annual coupons (paid in U.S. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. The cash flows of the bond are: The dollar-based yield to maturity is i_$ = 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.

• A)$927.62
• B)$941.30
• C)$965.06
• D)$987.06