Use the Information for the Question(s)below

question 35

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate,S,is $1.8862/£.Suppose that the yield curve in both countries is flat.The risk-free rate on dollars,r_$,is 5.35% and the risk-free interest rate on pounds,r_£,is 4.80%.
-Using the covered interest parity condition,the calculated one-year forward rate F₁ is closest to:

• A)$1.8568/£
• B)$1.8764/£
• C)$1.9161/£
• D)$1.8961/£

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Definitions:

Retention Ratio

The share of net income that remains in the business instead of being paid out to shareholders in the form of dividends.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales and earnings without increasing its debt or equity.

Total Asset Turnover

A financial metric that evaluates how effectively a company can produce revenue from its assets by contrasting net sales with the average total assets.

Dividends Paid

Dividends paid are the portion of a company's earnings distributed to its shareholders, typically in the form of cash payments or additional shares.