Robbins Corp. frequently invests excess funds in the Mexican money market. One y

Question

Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by Robbins?

a.

25.00 percent

b.

35.41 percent

c.

14.59 percent

d.

none of the above

IF someone could give the me the written solution as well it would be much apprecaited!

a.

25.00 percent

b.

35.41 percent

c.

14.59 percent

d.

none of the above

Explanation / Answer

Let us assume Robin has invested 100 pesos in mexican money market ie $ 12(dollar equiavalent 0.12*100)

Now he earned 25% on the 100 pesos ie 125 pesos

So Dollar Equivalent of 125 pesos = 125 * 0.11 = $ 13.75( peso had depreciated to $0.11)

Effective yield on the money market instrument = (13.75-12)/12 *100 = 14.59%

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