Test bank chapter 1 IntroductionSolution: Percentage change in pound = (Test bank chapter 1 Introduction.05 - .95 = 5.1%
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| Solution: Percentage change in pound = ($2.05 - $1.95)/$1.95 = 5.1%.
Effective interest rate = (1 + 0.06) (1 + 0.051) - 1 = 11.4%. 38. The one-year US interest rate is 10 percent, and the one-year Italian interest rate is 13 percent. If a US company invests its funds in Italy, by what percentage would the euro have to depreciate to make its effective interest rate the same as the US interest rate from the US company's perspective? A. -10.55% B. - 6.50% C. - 4.65% * D. - 2.65% E. - 1.00% Solution: Use Equation (14-1). 0.10 = (1 + 0.13)(1 + ie) - 1; solve the equation for ie (percentage depreciation). ie = (1 + 0.10/(1 + 0.13) - 1 = -2.65%. 39. A US investor has $5 million in excess cash that it has invested in Chile at an annual interest rate of 60 percent. The US interest rate is 9 percent. By how much would the Chilean peso have to depreciate to cause such a strategy to backfire? A. -10.55% B. -20.00% * C. -31.88% D. -35.00% E. -42.50% Download 435.5 Kb. Share with your friends: 
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