a foreign investor placing money in dollar denominated assets desires a 4% real rate of return....
a foreign investor placing money in dollar denominated assets desires a 4% real rate of return. Global inflation is running about 3%, and the dollar is expected to decline against his or her home currency by 1.5% over the investment period. What is his or her minimum required rate of return?
Homework Answers
Answer:
Desired real rate of return = 4%
Global Inflation = 3%
The investor placed money in dollar denominated assets and the dollar is expected to decline against his or her home currency by 1.5% over the investment period.
His/her minimum rate of return has to factor in global inflation as well as depreciation of dollar over and above real rate of return he/she desires.
His or her minimum required rate of return approximately = 4% + 3% + 1.5% = 8.5%
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a foreign investor placing money in dollar denominated assets
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