The present exchange rate is c us 078 the one year

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29. The present exchange rate is C$ = U.S. $0.78. The one year future rate is C$ = U.S. $0.76. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year __________ Canadian bill will make investor indifferent between investing in the U.S. bill and the Canadian bill. A. 2.4% B. 1.3% C. 6.4% D. 6.7% E. none of the above 1.04 = [($0.76/$0.78)(1 + r)] - 1; r = 6.7%. Difficulty: Moderate Assume there is a fixed exchange rate between the Canadian and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the U.S. and Canadian stock markets is 1.5%. 25-11
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Chapter 25 - International Diversification 30. If you invested 50% of your money in the Canadian stock market and 50% in the U.S. stock market, the expected return on your portfolio would be __________. 18% (0.5) + 13%(0.5) = 15.5%. Difficulty: Moderate 31. If you invested 50% of your money in the Canadian stock market and 50% in the U.S. stock market, the standard deviation of return of your portfolio would be __________. s P = [(0.5) 2 (15%) 2 + (0.5) 2 (20%) 2 + 2(0.5)(0.5)(1.5)] 1/2 = 12.53%. Difficulty: Difficult 32. The major concern that has been raised with respect to the weighting of countries within the EAFE index is Some argue that countries should be weighted in proportion to their GDP to properly adjust for the true size of their corporate sectors, since many firms are not publicly traded. Difficulty: Moderate 25-12
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Chapter 25 - International Diversification 33. You are a U.S. investor who purchased British securities for 2,000 pounds one year ago when the British pound cost $1.50. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60. A. 16.7% B. 20.0% C. 28.0% D. 40.0% E. none of the above ($3,840 - $3,000)/$3,000 = 0.28, or 28.0%. Difficulty: Moderate 34. U.S. investors U.S. investors can invest as indicated in A, examples of which are given in C. Difficulty: Moderate 25-13
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Chapter 25 - International Diversification
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