Suppose the 1-Year Risk-Free Rate of Return in the U

question 11

Multiple Choice

Suppose the 1-year risk-free rate of return in the U.S. is 4%, and the 1-year risk-free rate of return in Britain is 7%. The current exchange rate is 1 pound = U.S. $1.65. A 1-year future exchange rate of __________ for the pound would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security.

• A) 1.6037
• B) 2.0411
• C) 1.7500
• D) 2.3369

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Definitions:

Radical Chain Initiator

A substance that can produce free radicals under suitable conditions, initiating a chain reaction, especially in polymerization.

Peroxides

Organic compounds containing an oxygen-oxygen single bond, often used as initiators, bleaching agents, and antiseptics.

Acid-catalyzed Hydration

A chemical reaction where an acid catalyst adds water to an unsaturated compound, often forming alcohols.

Stereochemical Detail

Information regarding the spatial arrangement of atoms within a molecule and how this affects its chemical behavior.