A Brazilian bond with a coupon rate of 15% at is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$950. During the year, the exchange rate goes from R$1= U.S.$0.75 to R$1= U.S.$0.85. What is the bond's total dollar return during the period? 10% 31.25% 15% 0.53 / 0.53 pts 22.67%

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09-12-2022
Business

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A Brazilian bond with a coupon rate of 15% at is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$950. During the year, the exchange rate goes from R$1= U.S.$0.75 to R$1= U.S.$0.85. What is the bond's total dollar return during the period? 10% 31.25% 15% 0.53 / 0.53 pts 22.67%

Answer :

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ewomazinoade ewomazinoade · Answer 1 · 2022-12-13T12:12:17-05:00

The total dollar return on the bond during the period is 22.67% (sixth option)

What is the total dollar return?

A bond is a debt instrument that is used by businesses to raise the capital needed for operation.

Bondholders receive interest at regular predetermined time intervals. At the maturity of the bond, the bondholders are paid back the amount that was invested in the bond. The interest that is earned is a function of the coupon rate of the bond.

The total dollar return on the bond is the sum of the coupon rate and the price appreciation or depreciation of the bond.

Total dollar return = coupon rate + price appreciation.

In order to determine the price appreciation, convert the prices of the bond to dollars.

Face value of the bond in dollars = R$1,000 x $0.75 = $750

Price of the bond at the end of one year = R$950 x $0.85 = 807.50

Price appreciation = (807.50 / 750) - 1 = 0.07667 = 7.667%

Total dollar return = 15% + 7.667% = 22.67%

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