Suppose the initial price of a French bond is FF 850, the coupon income is FF 70, the end?of?period bond price is FF 1,000, and the franc devalues by 6% against the dollar during the period. What was the bond's total dollar return during the period?

Question

Quizplus · Accepted Answer

First, calculate the initial yield: (70 + 1000 - 850) / 850 = 23.53%
Then, calculate the end-of-period yield after the currency devaluation: (70 + 1000*0.94 - 850*0.94) / 850*0.94 = 24.73%
Next, calculate the total dollar return: (70 + 1000*0.94 - 850*0.94) - 850 = 96 
Finally, calculate the dollar return as a percentage of the initial price: 96 / 850 = 11.29%, which when added to the 7.04% yield, gives a total return of 18.33% (Option B).

Suppose the Initial Price of a French Bond Is FF