2. A firm has just issued (January 1, 2018) a bond that has a face value of $1,000, a coupon rate of 7 percent paid semi-annually (June 30, December 31), and matures in 10 years. The bonds were issued with a yield to maturity of 6%. What price were the bonds issued at? Assume that on July 1, 2020, the bond trades to earn an effective yield of 9%. At what price should this bond be trading for on July 1, 2020? PRICE WHEN ISSUED: PRICE ON JULY 1, 2020: 3. A Canadian company has a division in Mexico. The Canadian company needs to borrow money for its Mexican division and has the choice of borrowing in Mexico or Canada. The effective annual interest rate in Canada is 6 percent and the interest rate in Mexico is 10 percent. The current exchange rate is 15 Mexican pesos per Canadian dollar. If you believe that the Canadian dollar will depreciate 10 percent against the Mexican peso over the next 6 months, where should the company borrow? For simplicity, assume that the company wants to borrow $100 dollars for 6 months.
2. A firm has just issued (January 1, 2018) a bond that has a face value of $1,000, a coupon rate of 7 percent paid semi-annually (June 30, December 31), and matures in 10 years. The bonds were issued with a yield to maturity of 6%. What price were the bonds issued at? Assume that on July 1, 2020, the bond trades to earn an effective yield of 9%. At what price should this bond be trading for on July 1, 2020? PRICE WHEN ISSUED: PRICE ON JULY 1, 2020: 3. A Canadian company has a division in Mexico. The Canadian company needs to borrow money for its Mexican division and has the choice of borrowing in Mexico or Canada. The effective annual interest rate in Canada is 6 percent and the interest rate in Mexico is 10 percent. The current exchange rate is 15 Mexican pesos per Canadian dollar. If you believe that the Canadian dollar will depreciate 10 percent against the Mexican peso over the next 6 months, where should the company borrow? For simplicity, assume that the company wants to borrow $100 dollars for 6 months.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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