You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000.The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end.The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end.What holding period return,measured in U.S.dollars,did you earn on the bond?

Question

Quizplus · Accepted Answer

The initial investment in US dollars was:

¥100,000 / ¥100 = $1,000

The final value of the investment in US dollars was:

¥110,000 / ¥122 = $901.64

Therefore, the holding period return in US dollars was:

($901.64 - $1,000) / $1,000 = -0.0984 = -9.84%

Adding the interest payment of 3%, the total holding period return in US dollars was:

-9.84% + 3% = -6.84%

which is closest to -7.38% (B).

You Bought a Yen-Denominated Corporate Bond at the Beginning of the Year