Question

You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is ______.
A. 8.00%
B. 6.00%
C. 10.16%
D. 5.88%
E. 10%

Answer 1

Answer:

C. 10.16%

Explanation:

Appreciation of a currency increases the value of one's return on investment depending on the percentage of appreciation.

Original interest rate before appreciation = 8%

Since the interest rate appreciated by 2%,

2% of 8 will give

$(\frac{2}{100}\times 8)=0.16%$

New value of interest = 8% + 0.16% = 8.16%

Effective return on investment = 8.16% + 2 % = 10.16%

∴The effective return from the the investment is = 10.16%