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Suppose you purchase a 10-year AAA-rated British bond for par that is paying an annual coupon...

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Finance

Suppose you purchase a 10-year AAA-rated British bond for parthat is paying an annual coupon of 9 percent and has a face valueof 1,000 British Pounds (£). The spot rate is US$1.105 for £. Atthe end of the year, the bond is downgraded to AA and the yieldincreases to 11 percent. In addition, the new spot rate becomesUS$0.985 for £. What is the loss or gain to a U.S. investor whoholds this bond for a year?

Multiple Choice

?15.32% loss

?11.28% loss

?8.71% loss

?12.71% loss

?10.14% loss

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Transcribed Image Text

Suppose you purchase a 10-year AAA-rated British bond for parthat is paying an annual coupon of 9 percent and has a face valueof 1,000 British Pounds (£). The spot rate is US$1.105 for £. Atthe end of the year, the bond is downgraded to AA and the yieldincreases to 11 percent. In addition, the new spot rate becomesUS$0.985 for £. What is the loss or gain to a U.S. investor whoholds this bond for a year?Multiple Choice?15.32% loss?11.28% loss?8.71% loss?12.71% loss?10.14% loss

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