The Interest Rate on a 1-Year Canadian Security Is 8

question 25

Multiple Choice

The interest rate on a 1-year Canadian security is 8%.The current exchange rate is C$ = US $0.78.The 1-year forward rate is C$ = US $0.76.The return (denominated in U.S.$) that a U.S.investor can earn by investing in the Canadian security is __________.

• A)3.59%
• B)4.00%
• C)5.23%
• D)8.46%
• E)none of the above

---

Definitions:

Interest Rate

The amount charged by a lender to a borrower for the use of assets, usually expressed as a percentage of the principal.

Bond's Principal

The face value of a bond, or the amount that the bond issuer agrees to repay the bondholder at the bond's maturity date.

Bank Interest

The amount paid to depositors for holding their money in a bank account, or the amount charged to borrowers for taking out a loan.

Annual Payments

Recurring payments made once a year, often related to loans, insurance premiums, or obligations.