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Business, 26.03.2020 19:09 SignoraPenguino

An investment manager hedges a portfolio of Bunds (German government bonds) with a 6-month forward contract. The current spot rate is €0.75/$, and the 180- day forward rate is €0.72/$. At the end of the 6-month period, the Bunds have risen in value by 3.75% (in euro terms), and the spot rate is now €0.66/$.a. If the Bunds earn interest at the annual rate of 5%, paid semiannually, what is the investment man- ager’s total dollar return on the hedged Bunds?b. What would the return on the Bunds have been without hedging?c. What was the true cost of the forward contract?

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