Suppose You Purchase a 10-Year AAA-Rated British Bond for Par

question 32

Multiple Choice

Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon of 9 percent and has a face value of 1,000 British Pounds (£) . The spot rate is US$1.105 for £. At the end of the year,the bond is downgraded to AA and the yield increases to 11 percent. In addition,the new spot rate becomes US$0.985 for £.
What is the loss or gain to a U.S. investor who holds this bond for a year?

• A)−11.28% loss
• B)−10.14% loss
• C)−15.32% loss
• D)−8.71% loss
• E)−12.71% loss

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Definitions:

Gender

The state of being male or female.

Setting

The environment or context in which something takes place, including physical locations, cultural backgrounds, and social circumstances.

Polygraph Machine

A device used to measure and record physiological indicators such as blood pressure, pulse, respiration, and skin conductivity while a person is asked and answers a series of questions, purported to indicate truthfulness.

Lie Detector

A device or procedure that attempts to determine whether a person is telling the truth by measuring physiological responses.