Suppose the 1-Year Risk-Free Rate of Return in Canada Is

question 28

Multiple Choice

Suppose the 1-year risk-free rate of return in Canada is 2%.The current exchange rate is 1 pound = C $1.60.The 1-year forward rate is 1 pound = C $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a Canadian investor to invest in the British security?

• A) -1.88%
• B) .09%
• C) 1.91%
• D) 3.95%
• E) none of these

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Definitions:

Accounts Payable

Liabilities of a company or organization for goods or services that have been received but not yet paid for.

Net Income

The final earnings of a company once expenses and taxes are subtracted from the total revenue.

Operating Activities

Transactions and events that relate to the primary operations of the company, including revenue and expense activities.

Cash Flows

The cash that is moving into and out of a business, representing its operating, investing, and financing activities over a specific period.