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5. At the beginning of the year the exchange rate between the Brazilian Real and the U.S. dollar is 3 Reals per dollar. Over the year, Brazilian inflation is 10% and U.S. inflation is 4%. If parity holds, at one-year-end the exchange rate should be dollars per real. ( A A) 0.2799 B) 0.3327 C) 2.8498 D) 0.3145 E) 0.3035 6. If the interest rate in the United Kingdom is 8%, the interest rate in the US is 10%, the spot exchange rate $1.75/£, and interest rate parity holds, what must be the two-year forward exchange rate. ? ( ) 7. You buy a stock for $10 per share and sell it for $12 after holding it for slightly over a year and collecting a $0.50 per share dividend. Your rate of return is A) 18/1% B) 19.6% C) 25.0% D) 20.2% E) 17.4% 8. You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound 1 year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? +) A) 4.00% B) 5.25% C) 2.75% D) 3.48% E) 6.52%

5. At the beginning of the year the exchange rate between the Brazilian Real and the U.S. dollar is 3 Reals per dollar. Over the year, Brazilian inflation is 10% and U.S. inflation is 4%. If parity holds, at one-year-end the exchange rate should be dollars per real. ( A A) 0.2799 B) 0.3327 C) 2.8498 D) 0.3145 E) 0.3035 6. If the interest rate in the United Kingdom is 8%, the interest rate in the US is 10%, the spot exchange rate $1.75/£, and interest rate parity holds, what must be the two-year forward exchange rate. ? ( ) 7. You buy a stock for $10 per share and sell it for $12 after holding it for slightly over a year and collecting a $0.50 per share dividend. Your rate of return is A) 18/1% B) 19.6% C) 25.0% D) 20.2% E) 17.4% 8. You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound 1 year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? +) A) 4.00% B) 5.25% C) 2.75% D) 3.48% E) 6.52%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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5. At the beginning of the year the exchange rate between the Brazilian Real and the U.S. dollar is 3 Reals per dollar. Over the year, Brazilian inflation is 10% and U.S. inflation is 4%. If parity holds, at one-year-end the exchange rate should be dollars per real. ( A A) 0.2799 B) 0.3327 C) 2.8498 D) 0.3145 E) 0.3035 6. If the interest rate in the United Kingdom is 8%, the interest rate in the US is 10%, the spot exchange rate $1.75/£, and interest rate parity holds, what must be the two-year forward exchange rate. ? ( ) 7. You buy a stock for $10 per share and sell it for $12 after holding it for slightly over a year and collecting a $0.50 per share dividend. Your rate of return is A) 18/1% B) 19.6% C) 25.0% D) 20.2% E) 17.4% 8. You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound 1 year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? +) A) 4.00% B) 5.25% C) 2.75% D) 3.48% E) 6.52%
Transcribed Image Text:5. At the beginning of the year the exchange rate between the Brazilian Real and the U.S. dollar is 3 Reals per dollar. Over the year, Brazilian inflation is 10% and U.S. inflation is 4%. If parity holds, at one-year-end the exchange rate should be dollars per real. ( A A) 0.2799 B) 0.3327 C) 2.8498 D) 0.3145 E) 0.3035 6. If the interest rate in the United Kingdom is 8%, the interest rate in the US is 10%, the spot exchange rate $1.75/£, and interest rate parity holds, what must be the two-year forward exchange rate. ? ( ) 7. You buy a stock for $10 per share and sell it for $12 after holding it for slightly over a year and collecting a $0.50 per share dividend. Your rate of return is A) 18/1% B) 19.6% C) 25.0% D) 20.2% E) 17.4% 8. You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound 1 year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? +) A) 4.00% B) 5.25% C) 2.75% D) 3.48% E) 6.52%
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