Martin Bowman is preparing a report distinguishing traditional debt securities from structured note securities.
a. Discuss how the following structured note securities differ from a traditional debt security with respect to coupon and principal payments:
(1) Equity-index-linked notes
(2) Commodity-linked bear bond
Bowman is also analyzing a dual currency bond (USD/CHF) as a possible addition to his bond portfolio. Bowman is a USD-based investor and believes the CHF will appreciate against the USD over the life of the bond.
b. (1) Describe the principal and coupon components of a dual currency bond.
(2) State one reason why a dual currency bond might trade at a premium over an otherwise identical single currency bond.
(3) Discuss whether there is an impact on a dual currency bond’s interest payments and principal payments if the CHF appreciates the USD over the life of the bond.
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