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

question 19

Multiple Choice

Suppose the 1-year risk-free rate of return in the USA is 5% and the 1-year risk-free rate of return in Britain is 8%.The current exchange rate is $1 = ₤0.50.A
1-year future exchange rate of __________ would make a U.S.investor indifferent between investing in the U.S.security and investing in the British security.

• A) ₤0.5150
• B) ₤0.5142
• C) ₤0.5123
• D) ₤0.4859

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Definitions:

Precede

To come before something else in time, order, or position.

Demonstrably

Capable of being proven or shown through evidence or clear examples.

Ex Post Facto Design

An “after the fact” experimental design in which there is no control over experimental conditions.