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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.

#### 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.

\$2.49