What risk-free dollar denominated return

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Reference no: EM131905597

1. The spot price for gold is $2,000 per ounce. The dividend yield on the S&P 500 is 7.0%. The risk-free interest rate is 8.0%. The futures price for gold for a 6-month contract on gold should be __________.

A. $1,957.24

B. $2,021.33

C. $2,006.29

D. $2,009.98

2. If the current exchange rate is $1.90/£, the one-year forward exchange rate is $1.95/£, and the interest rate on British government bills is 10.00% per year, what risk-free dollar denominated return can be locked in by investing in the British bills?

Risk-free Return = ?

3. Suppose the 1-year risk-free rate of return in the United States is 6.3% and the 1-year risk-free rate of return in Britain is 9.3%. The current exchange rate is $1 = £0.70. 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. £0.7198

B. £0.6914

C. £0.7178

D. £0.7205

4. The yield on a 1-year bill in the United Kingdom is 7.2%, and the present exchange rate is 1 pound = US$3.12. If you expect the exchange rate to be 1 pound = US$3.04 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is approximately __________.

A. −4.00%

B. 4.00%

C. 4.45%

D. 9.82%

5. The risk-free interest rate in the United States is 8%, while the risk-free interest rate in the United Kingdom is 15%. If the 1-year futures price on the British pound is $2.40, the spot market value of the British pound today should be __________.

A. $1.93

B. $2.22

C. $2.56

D. $2.76

Reference no: EM131905597

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