Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price

Question

Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of ¥1,100. The bond’s face value is ¥1,000. At the end of the year, the bond is selling at ¥1,050 and the ¥ has depreciated by 10%. What is the dollar return on the bond at the end of the year?Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of ¥1,100. The bond’s face value is ¥1,000. At the end of the year, the bond is selling at ¥1,050 and the ¥ has depreciated by 10%. What is the dollar return on the bond at the end of the year?  

Explanation / Answer

Total return= [coupon+(final-inital)]/initial

coupon=1000*10%=100 yen

return in yen =(100+1050-1100)/1100

=4.55%

Fiven yen depreciated by 10%

Dollar return on bond=4.55%-10%=-5.45%

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