A CANADIAN INVESTOR HAS CANADIAN $100,000 TO INVEST FOR ONE YEAR....

28. A Canadian investor has Canadian $100,000 to invest for one year. US Treasury bills offer a yield of 11 percent. The current exchange rate of the Canadian dollar is US$0.50. What is the yield on the investment if the exchange rate of the Canadian dollar is US$0.46 at the end of the year? A. 10.25% B. 12.55% C. 15.00% * D. 20.65% E. 25.00% Solution: Convert Canadian $100,000 to US$50,000 at $0.50 rate. Invest US$50,000 in the US at 11 percent. ($50,000 x 1.11 = $55,500) Reconvert US dollars to Canadian dollars. ($55,500/$0.46 = Canadian $120,652) Yield = (Canadian $120,652 – Canadian $100,000)/Canadian $100,000 = 20.65%. Chapter 17 Corporate Strategy and Foreign Direct Investment