You are a U.S. investor considering purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the six-month discount on Canadian dollar forward contracts is - .75% versus the U.S. dollar.
Calculate the expected price change required in the Canadian government bond that would result in the two bonds having equal total returns in U.S. dollars over a six-month horizon. Assume that the yield on the U.S. bond is expected to remain unchanged.
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