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

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Definitions:

Superseding Event

An unforeseeable event that interrupts the chain of causation and relieves all parties of liability.

Assumption of Risk

A legal doctrine under which an individual knowingly and willingly takes on the risks associated with an activity, potentially limiting liability for harm that occurs as a result.

Res Ipsa Loquitur

A legal doctrine that infers negligence from the very nature of an accident or injury, in the absence of direct evidence on how any defendant behaved.

Rebuttable Presumption

is a presumption in law that one can challenge and overturn with evidence to the contrary.