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Suppose you purchase a 8-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 2,700 Swiss francs (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 10 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1.
a. What is the loss or gain to a Swiss investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
LOSS to Swiss investor _____ %
b. What is the loss or gain to a U.S. investor who holds this bond for a year? (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
LOSS to U.S. investor _______ %
Can you think of any factors other than the expected return that might be important to consider when choosing between the two investment alternatives?
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