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Helen [10]
3 years ago
15

Assume the spot rate for the British pound currently is £.6369 per $1. Also assume the one-year forward rate is £.6421 per $1. A

risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security?
Business
1 answer:
inna [77]3 years ago
5 0

Answer:

4.04%

Explanation:

Using the Interest rate parity formula according to this theory the forward exchange rate of  should be equal to the spot rate multiplied by the interest rate of the domestic country divided by the interest rate of the foreign country so from this formula

F=S*(1+i)/(1+r)

we derive

(1+r)=F/S*(1+i)

1+r =0.6421/0.6369*(1.032)

1+r =1.0404

 r   = 0.0404/4.04%

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Answer and Explanation:

The computation of two different depreciation schedules is shown below:-

a. Using the Double-declining balance method

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2005                $90,000                     50%                  $45,000

2006                $45,000                      50%                  $22,500

2007                $22,500                      50%                  $11,250

2008 No depreciation as it is lower that straight line method that is $22,500 also we took the double rate of 25% so we consider 50%

b. Using the straight line method

Straight Line Depreciation Method:

$100,000 - $10,000

= $90,000

Year            Equipment Cost      Depreciation rate      Amount

2005                $90,000                     25%                      $22,500

2006                $90,000                      25%                     $22,500

2007                $90,000                      25%                     $22,500

2008                $90,000                      25%                     $22,500

Depreciation rate is

= 1 ÷ 4 years

=  25

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Answer:

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