Six months ago, a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the annualized rate of return to the Swiss investor?

Question

Quizplus · Accepted Answer

The Swiss investor bought the Treasury bill for $9,708.74, which equals 9,708.74 x 1.420 = 13,788.13 Swiss francs (CHF). Today, at maturity, the Swiss investor will receive $10,000, which equals 10,000 x 1.324 = 13,240 CHF. Therefore, the Swiss investor has lost 13,788.13 - 13,240 = 548.13 CHF.

To calculate the annualized rate of return, we need to use the formula:

(Ending value / Beginning value)^(1 / # of years) - 1

In this case, the beginning value is 13,788.13 CHF and the ending value is 13,240 CHF. The time period is 6 months, or 0.5 years.

Annualized rate of return = (13,240 / 13,788.13)^(1 / 0.5) - 1 = -0.0792 or -7.92%

Therefore, the best choice is A, which represents a negative annualized rate of return of 7.92%.

Six Months Ago, a Swiss Investor Bought a 6-Month U