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    Effective yield on Euro bonds

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    1. If you invest $1,000 in Euro bond for 1 yr paying 5 percent interest. At the time the investor bought the Euro bond, the exchange rate was $1.00 per Euro.

    a) If 1 year later you convert the maturity value of the investment in Euro to US dollars, the exchange rate was $ 1.02 per Euro, compute the effective yield in US dollar terms.

    b) If 1 year later you convert the maturity value of the investment in Euro to US dollars, the exchange rate was $ 0.95 per Euro, compute the effective yield in US dollar terms.

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    Solution Preview

    1. If you invest $1,000 in Euro bond for 1 yr paying 5 percent interest. At the time the investor bought the Euro bond, the exchange rate was $1.00 per Euro.

    a) If 1 year later you convert the maturity value of the investment in Euro to US dollars, the exchange rate was $ 1.02 per Euro, compute the effective yield in US dollar terms.

    Amount invested in $= $1,000
    Exchange rate at the ...

    Solution Summary

    The expert calculates the effective yield on Euro bonds. The investors buying euros is determined.

    $2.19

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