Reference no: EM133073500
Question - On July 12th, 2016, the Mexican government issued a 20-year, 6% semi-annual, fixed rate coupon bond, at a $1,000 par value.
One year after the issue (July 12th, 2017), New York-based hedge fund Viewcrest Street Partners (VSP) purchased 12,000 units of these bonds at a price of 75% of par. HP financed 60% of this purchase with a 1-year renewable bank loan at a 3.5% interest. The remaining 40% of the purchase was financed with HP equity.
Two years after the issue (July 12th, 2018), VSP sold all its Mexican bonds at 80% of par, after having received the coupon payments for Year 2 (but not for Year 1).
Required - Please answer the following questions (Ignore taxes; show the details of your calculations):
- What was the yield to maturity of the bonds on the date that VSP purchased them?
- What was VSP's net profit (or loss) per bond in dollars on this trade after selling the bonds in 2019?
- What was VSP's ROA on this deal? What was VSP's ROE on this deal?
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