What Is the Expected Dollar Rate of Return on Euro

question 11

Multiple Choice

What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.167 per euro, next year's expected exchange rate at $1.10 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

• A) 10%
• B) 11%
• C) -1%
• D) 0%

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Definitions:

Net Income

The total amount of profit a company earns after taxes and all expenses have been deducted from revenues, commonly referred to as the bottom line.

Sustainable Growth Rate

The highest speed at which a business can expand its profits without having to raise its debt levels or issue more equity.

Retention Ratio

The percentage of net income that is retained to be reinvested in the business, rather than being paid out as dividends.

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends, calculated by dividing the total amount of dividends by the net income of the company.