The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannualreturn is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rateparity holds, what is the nominal annual interest rate on default-free 6-month British bonds?

The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannualreturn is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rateparity holds, what is the nominal annual interest rate on default-free 6-month British bonds?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 1P

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