Question
Imagine that everyone in the world pays a tax of percent on interest earnings and on any capital gains due to exchange rate changes. How
Imagine that everyone in the world pays a tax of percent on interest earnings and on any capital gains due to exchange rate changes. How would such a tax alter the analysis of the interest paritycondition?
A.
The interest parity condition will become (1)R$=R+Ee$/E$//E$/.
B.
The interest parity condition will become R$=R+(1)Ee$/E$//E$/.
C.
The interest parity condition will become R$=(1)R+Ee$/E$//E$/.
D.
The interest parity condition will be unchanged R$=R+Ee$/E$//E$/.
Now suppose that the tax applies to interestearnings, but capital gains are untaxed. How would we have to modify the interest paritycondition?
A.
The interest parity condition will become R$=R+Ee$/E$//(1)E$/.
B.
The interest parity condition will become (1)R$=R+Ee$/E$//E$/.
C.
The interest parity condition will become R$=(1)R+Ee$/E$//E$/.
D.
The interest parity condition will become R$=R+(1)Ee$/E$//E$/.
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Principles of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
Arab World Edition
1408271583, 978-1408271582
