Hedged return quiz investing, following, interest, expected

jbaldyga

You are provided with the following information:

Projected bond market returns:
US 9%
UK 10%

Projected Currency returns:
Dollar n/a
Euro 4%
Sterling 6%
Yen 6%

One year interest rates:
US 3%
France 4%
Japan 1%
UK 5%

What is the expected return of a US investor investing in the UK market that has hedged the Pound with the US dollar?

Possible answers:

A: 6%
B: 8%
C: 10%
D: 12%

aidebaobao

b, hedged return is us int rate + bonds excess return ...3% + (10-5) = 8

Analyze_This

B for the win

jmh530

B.

BTW, US bond market is more attractive (9%).



Edited 1 time(s). Last edit at Thursday, May 12, 2011 at 08:39AM by deriv108.

lcw77

B

NO EXCUSES