Suppose the 1-Year Risk-Free Rate of Return in the U

question 12

Multiple Choice

Suppose the 1-year risk-free rate of return in the U.S. is 6%. The current exchange rate is 1 pound = U.S. $1.62. The 1-year forward rate is 1 pound = $1.53. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

• A) 15.44%
• B) 13.50%
• C) 12.24%
• D) 7.62%
• E) None of the options

---

Definitions:

Business Revenues

The income generated from normal business operations, typically from the sale of goods and services to customers.

Proprietorship

A business owned and operated by a single individual, who is entitled to all profits and responsible for all debts.

Easy And Cheap

Descriptive terms indicating something is not difficult to do or obtain and does not require a lot of resources, specifically money, to acquire.

Service Business

A type of business that provides intangible products or services to customers, rather than producing tangible goods.