Suppose the nominal risk-free rate of interest in US is 3%, and that of Canada is...

Question

Question

Answer 1

Answer #1

Answer: Option (D): 4% Solution: We know that Real rate=[(1 +Nominal rate) / (1 + inflation rate)] – 1 Real rate of return in

Answer 2

Similar Homework Help Questions

Suppose the nominal risk-free rate of interest in US is 3%, and that of Canada is...

Suppose the nominal risk-free rate of interest in US is 3%, and that of Canada is 2%. The inflation rate in US is 5%, what is the inflation rate in Canada? A. 1% OB.-1% C.2% D.4% - E none QUESTION 10 Estimate the exchange rate in the next two years, if US inflation rate is 5%, and that of Canada is 4%. The current spot rate is $10585 Tip Use the "Amoateng Gut Check' to forecast this exchange rate O...
Suppose the nominal risk-free rate of interest in US is 3%, and that of Canada is...

Suppose the nominal risk-free rate of interest in US is 3%, and that of Canada is 2%. The inflation rate in US is 5%, what is the inflation rate in Canada? A. 1% B.-1% C.2% D.4% E none
Risk-free rate and risk premiums The real rate of interest is currently 3%; the infla- tion...

Risk-free rate and risk premiums The real rate of interest is currently 3%; the infla- tion expectation and risk premiums for a number of securities follow. P6-8 Inflation expectation Security Risk premium Premium 6% 3% 2 2 D 5 4 E 11 1 a. Find the risk-free rate of interest, RE, that is applicable to each security. b. Although not noted, what factor must be the cause of the differing risk-free rates found in part a? c. Find the nominal...

7,8 If last year's Euro US$ rate was 0 6780 and the current rate is 07455,...

7,8 If last year's Euro US$ rate was 0 6780 and the current rate is 07455, what is the change in currency (appreciation or depreciation) OA-6.70% OB 6.70% OC-9.49% D 9.49% O E none QUESTION 8 ITUS T-bil rate is currently at 5% and that of Mexico is 8%, what will be the exchange rate five years from now if the spot exchange rate is 50 20 per peso? Tip Use the "Amoatong Gut-Check" to forecast O A $0 2303...
U.S. (Nominal Interest Rate) = 4% Canada (Nominal Interest Rate) = 5% According to economic theor...

U.S. (Nominal Interest Rate) = 4% Canada (Nominal Interest Rate) = 5% According to economic theory, investors will move their funds from U.S. to Canada because they earn a better interest rate, therefore, demand for Canadian $ will increase, so Canadian $ will appreciate, and $ will depreciate. According to the fishier effect, real interest rate is assumed to usually be in equilibrium. So, Nominal Interest Rate = Real Interest Rate + Expected Inflation U.S. 4% = 3% + 1%...
Which of these is TRUE of the nominal risk-free rate and the real risk-free rate? Real...

Which of these is TRUE of the nominal risk-free rate and the real risk-free rate? Real risk-free rate must always include inflation premium Nominal risk-free rate includes inflation while real risk-free rate does not Real risk-free rate excludes the product of inflation and inflation premium None of the above

help with 3,9,10 please The market value of debt is $425 million and the total market...

help with 3,9,10 please The market value of debt is $425 million and the total market value of the firtn is $925 million. The cost of equity is 17%, the cost of debt is 10% and the corporate tax rate is 35%. What is the WACC? O A 11.01% OB 12.18% OC 13.78% OD 14.17% E none Suppose the nominal risk-free rate of interest in US is 3% and that of Canada is 2% The inflation rate in US is...
Higie a. real rate b. nominal rate C. risk-free rate d. prime rate Sae. inflation rate...

Higie a. real rate b. nominal rate C. risk-free rate d. prime rate Sae. inflation rate 3. Which of the following describes the observed or stated interest rate? a. real rate b. nominal rate c. risk-free rate d. prime rate e. inflation rate
9) Suppose today that US nominal interest rate = 1% and German nominal interest rate =...

9) Suppose today that US nominal interest rate = 1% and German nominal interest rate = 6% and the current nominal exchange rate is E = €0.50/$. a. Use the uncovered interest party equation to compute the expected rate of appreciation of the US$ relative to the Euro. (Approximate form of the equation is fine.) b. Given your answer to a, what the expected future exchange rate? c. If you expect the US$ to depreciate relative to the Euro which...

If the spot exchange rate for the US/Canadian dollar rate was 1.0150 in 2011 and risk-free...

If the spot exchange rate for the US/Canadian dollar rate was 1.0150 in 2011 and risk-free rate was 3.5% in Canada and 2.5% in US, what would be the expected exchange rate in 2013? A. -$0.9955 B. $0.9955 C. $1.0349 D. -$1.0349 E. none