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 6-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 6-month horizon. Assume that the yield to maturity on the U.S. bond is expected to remain unchanged.? L042