An MNC issues ten-year bonds denominated in 500,000 Philippines pesos (PHP) at par. The bonds have a coupon rate of 15 percent. If the peso remains stable at its current level of $.025 over the lifetime of the bonds and if the MNC holds the bonds until maturity, the financing cost to the MNC will be:

Question

An MNC issues ten-year bonds denominated in 500,000 Philippines pesos (PHP) at par. The bonds have a coupon rate of 15 percent. If the peso remains stable at its current level of $.025 over the lifetime of the bonds and if the MNC holds the bonds until maturity, the financing cost to the MNC will be:​

Quizplus · Accepted Answer

The financing cost to the MNC is equal to the coupon rate of 15 percent. Since the MNC holds the bonds until maturity, there are no capital gains or losses to factor in. The exchange rate between the peso and the dollar does not affect the financing cost, as the MNC will pay the coupon and principal in pesos, and receive the same amount back at maturity. Therefore, the answer is C) 15.0 percent.

An MNC Issues Ten-Year Bonds Denominated in 500,000 Philippines Pesos