The Current Spot Rate for the Norwegian Krone Is $1

question 276

Multiple Choice

The current spot rate for the Norwegian krone is $1 = NKr6.0888. The expected inflation rate in Norway is three % and in the U.S. four %. A risk-free asset in the U.S. is yielding six %. What risk-free rate of return should you expect on a Norwegian security?

• A) 2 %
• B) 3 %
• C) 4 %
• D) 5 %
• E) 6 %

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Definitions:

Weighted-Average Number

A calculation that takes into account the varying degrees of importance of the numbers in a data set, used to find a kind of average that considers weight.

Preferred Stock

A type of stock that grants holders priority for dividend payments and, in some cases, priority in asset liquidation over common stockholders.

Stockholders' Equity

The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings.

Cash Dividend

A payment made by a company out of its earnings to shareholders, usually in the form of cash.