Overview

CALCULATE NET TOTAL RETURN ON BOND INVESTMENT DENOMINATED IN ANY CURRENCY,

broken-down by trading gains (realized & unrealized), foreign exchange gains (realized & unrealized), interest received & accrued, fees paid. For fixed rate and zero-coupon bonds.

Suppose you invest  €10.000 to buy a bond denominated in USD at a price of 125 and the exchange rate USD/EUR is 0,80 (Euros for 1 Dollar), by converting your €10.000  into $12.500 (10.000/0,80) you will be able to buy $10.000 face value ($10000*125/100).

Suppose you sell your bond at a price of $130, generating $13.000, and in the meantime Euro appreciated vis-à-vis the Dollar, the exchange rate now being 0,70. Your sale proceeds converted to Euro will generate €9.100 (13.000*0,70). Since you originally invested €10.000, you realize a net capital loss of €900.

Now let’s see where this comes from:

  • realized Trading Gain of $500 [(10000 * ($130-$125)] which converted at 0,70 will generate €350
  • realized Forex Loss of €1.250 [($12.500*(0,80-0,70)]
  • in net terms you realized a capital loss of €900 (1.250-350)

 

Now, suppose the bond you invested in - expiring say July 7, 2030 - pays a coupon of 3% twice a year, on Jan. 7 and July 7. If you bought the bond say on March 10, 2019 and sold it on Jun 3, 2020, in addition to sales proceeds of $13.000, you will get a net interest income of $370,68 [or €259,48 (370,68*0,70)], composed as follows:

  • -$50,96 interest paid at purchase on March 10, 2019 from last coupon date of Jan. 7, 2019 ($10000*3%*62days)/365)
  • $148,77 coupon received on July 7, 2019 ($10000*3%*181days)/365)
  • $151,23 coupon received on Jan 7, 2020 ($10000*3%*184days)/365)
  • $121,64 interest received at sale on Jun 3, 2020 from Jan.7, 2020 ($10000*3%*148days)/365)

 

As a result, your total return on investment (ROI) will be:

  • -6,41% in Euros (-900,00+259,48)/10.000)*100
  • +6,97% in USD (500.00+370,68/12.500*100)
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