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 = ¥97 at year-end.What holding period return,measured in U.S.dollars,did you earn on the bond?

Question

Quizplus · Accepted Answer

The amount of interest earned is ¥100,000 * 3% = ¥3,000.
The current value of the bond in USD is ¥110,000 / 97 = $1,134.02.
The initial value of the bond in USD is ¥100,000 / 100 = $1,000.
Therefore, the holding period return in USD is (($1,134.02 - $1,000) + $3,000) / $1,000 = 0.1649 or 16.49%. 
The correct answer is D.

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