Question
As a Canadian Saver, you intend to invest $50 000 in one of the tree investments described below. The world risk free rate is 1%
As a Canadian Saver, you intend to invest $50 000 in one of the tree investments described below. The world risk free rate is 1% . There is a 2% risk premium on the Canadian discount bond but a Brazilian discount bond has a risk premium of 6%. The current nominal Cad Brazilian exchange rate is e cad = 3. ( Reals per Cad dollar). Before the pay out next period, you expect the Real to Depreciate relative to the Cad $ to a new nominal exchange rate, e future=4. Your third alternative is to by a condo in Florida. The current nominal Cad - Us exchange rate is e cad = 0.75. ( $ us per Cad dollar ) You expect the condo to increase in resale value by 20% but you also forecast the exchange rate to rise to ecad=0.80.
Based on your forecast what is the expected rate of return ( % yield ) on each investment ( correct to one decimal place is fine) ? For simplicity assume zero transaction costs.
% return on Cad bond______________
% return on Brazilian bond ________________
% return on Florida Condo_______________
Please explain also what is meant by "Cad" is this another name for Canadian bond???
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