Suppose that the annual interest rate on a dollar account in the U.S. is 4%, the interest rate on a euro account in Europe is 6%. The expected future exchange rate in dollars per euro is 1.2 and the current spot rate is 1.25 dollars per euro. You are considering putting your money in a USD account in the U.S. versus in a Euro account in Europe. Use the approximate uncovered interest parity condition to answer the below questions.

i) [3] What is the expected return on the dollar investment?

ii) [5] What is the expected return on the euro investment?

iii) [2] Does the UIP hold?

iv) [7] At what spot rate will the UIP hold?