Question
As a Canadian Saver, you intend to invest $50,000 in one of the three investments described below. The world risk-free rate is 1%. There is
As a Canadian Saver, you intend to invest $50,000 in one of the three investments described below. The world risk-free rate is 1%. There is a 2% risk-premium on the Canadian discount bond but a Brasilian discount bond has a risk-premium of 6%. The current nominal Cad-Brasilian exchange rate is eCAD = 3 (Reals per Cad dollar). Before the pay-out next period, you expect the Real to depreciate relative to the Cad$ to a new nominal exchange rate, efuture = 4. Your third alternative is to buy a condo in Florida. The current nominal Cad-US exchange rate is eCAD = 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 Brasilian Bond: _______
% return on Florida Condo: _______
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