A Risk-Free Asset in the U

question 20

Multiple Choice

A risk-free asset in the U.S. is currently yielding 3 percent while a Canadian risk-free asset is yielding 2 percent. The current spot rate is C$.72 is equal to $1. What is the approximate two-year forward rate if interest rate parity holds?

• A) C$.7057
• B) C$.7128
• C) C$.7136
• D) C$.7189
• E) C$.7272

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Definitions:

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues, indicating the company's financial performance over a specific period.

Significant Influence

A level of control in an investment relationship, generally assumed to exist if the investor holds 20% to 50% of the voting stock of the investee company.

Outstanding Voting Common Stock

Shares of common stock that are held by investors, excluding those owned by the company itself, which have voting rights.