Problem 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.