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Problem 9-4 (LG 9-5) Bank USA recently purchased $12.1 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. Answer is complete but not entirely correct. Exposure Return if dollar appreciates Return if dollar depreciates Appreciation 10.080 % 12.050 %

Problem 9-4 (LG 9-5) Bank USA recently purchased $12.1 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. Answer is complete but not entirely correct. Exposure Return if dollar appreciates Return if dollar depreciates Appreciation 10.080 % 12.050 %

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
Problem 1PS
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Problem 9-4 (LG 9-5) Bank USA recently purchased $12.1 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. X Answer is complete but not entirely correct. Return to question Exposure Return if dollar appreciates Return if dollar depreciates Appreciation ✓ 10.080 x % 12.050 %
Transcribed Image Text:Problem 9-4 (LG 9-5) Bank USA recently purchased $12.1 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. b. C. X Answer is complete but not entirely correct. Return to question Exposure Return if dollar appreciates Return if dollar depreciates Appreciation ✓ 10.080 x % 12.050 %
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