1. The current spot exchange rate between the U.S. dollar and the Mexican peso i
ID: 1126540 • Letter: 1
Question
1.
The current spot exchange rate between the U.S. dollar and the Mexican peso is $0.052 = 1 Mexican peso. The one-year forward exchange rate is $0.050 = 1 Mexican peso.
TRUE or FALSE: The interest rate parity relationship implies that the U.S. risk-free interest rate is greater than the Mexican risk-free interest rate.
True
False
2.
Today a U.S. investor uses $10,000 to buy shares of a British stock that sells for 5 British pounds per share. The exchange rate today is $1.40 = 1 British pound.
One year later the investor sells the shares for 5.50 pounds per share, and the exchange rate one year later is $1.54 = 1 British pound. What percent return (measured in U.S. dollars) did the U.S. investor earn on this investment?
10%
0%
-1%
21%
3.
XYZ Corporation has bonds that pay an annual coupon of $65. The par value of the bonds is $1,000. The current market price of the bonds is $900.
TRUE or FALSE: The "current yield" of the bonds is 6.5%.
True
False
4.
You are evaluating three zero coupon bonds. All of the bonds have a $1,000 par value. Bond A matures in 12 years and has a price today of $556.84. Bond B matures in 10 years and has a price today of $508.35. Bond C matures in 20 years and has a price today of $456.39, Which of these bonds has a yield to maturity that is less than6%/year?
only Bond C
Bonds A and C
Bonds A and B
Bonds B and C
only Bond B
only Bond A
10%
0%
-1%
21%
3.
XYZ Corporation has bonds that pay an annual coupon of $65. The par value of the bonds is $1,000. The current market price of the bonds is $900.
TRUE or FALSE: The "current yield" of the bonds is 6.5%.
True
False
4.
You are evaluating three zero coupon bonds. All of the bonds have a $1,000 par value. Bond A matures in 12 years and has a price today of $556.84. Bond B matures in 10 years and has a price today of $508.35. Bond C matures in 20 years and has a price today of $456.39, Which of these bonds has a yield to maturity that is less than6%/year?
only Bond C
Bonds A and C
Bonds A and B
Bonds B and C
only Bond B
only Bond A
Explanation / Answer
Higher risk free interest rate implies that currency shall be exchanged at higher rate in near future. But here in this case, US exchanged rate has reduced from $0.052=1 to $ 0.050=1.
Hence, this is False statement.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.