6. Factors affecting international bond prices Suppose you invested in a bond that has a...
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6. Factors affecting international bond prices
Suppose you invested in a bond that has a par value of 4,285,714.2857 British pounds, a coupon rate of 10 percent (with payments being made at the end of each year), and four years until its maturity. Also suppose that the value of the pound is currently $1.40.
For each of the scenarios, calculate the forecasted cash flows for years 1, 2, 3, and 4. (Hint: Do not round intermediate calculations. Round your final answers to the nearest whole dollar value.)
Scenario I (Stable Pound)
Year 1
Year 2
Year 3
Year 4
Forecasted value of the pound
$1.40
$1.40
$1.40
$1.40
Forecasted dollar cash flows
Scenario II (Weak Pound)
Year 1
Year 2
Year 3
Year 4
Forecasted value of the pound
$1.38
$1.36
$1.34
$1.30
Forecasted dollar cash flows
Scenario III (Strong Pound)
Year 1
Year 2
Year 3
Year 4
Forecasted value of the pound
$1.42
$1.45
$1.48
$1.51
Forecasted dollar cash flows
Based on your calculations, the least attractive foreign bonds are those that are denominated in a currency which ___ over time.
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