9 Effective yield. Rollins plc has 3 million in cash available for 180 days. It can earn

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9 Effective yield. Rollins plc has £3 million in cash available for 180 days. It can earn 7% on a UK Treasury bill or 9% on a US Treasury bill. The US investment does require conversion of pounds to dollars. Assume that interest rate parity holds and that Rollins believes the 180-day forward rate is a reliable predictor of the spot rate to be realized 180 days from now. Would the British investment provide an effective yield that is below, above, or equal to the yield on the US investment? Explain your answer.

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Exploring Economics

ISBN: 9780324395464

4th Edition

Authors: Robert L. Sexton

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