Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by Robbins?

Question

Quizplus · Accepted Answer

The effective yield can be calculated by considering both the interest earned and the effect of currency depreciation. The interest earned is 25%. However, the depreciation of the peso from $.12 to $.11 represents a depreciation of approximately 8.33% (1/12). The effective yield, therefore, is the interest earned minus the loss due to depreciation, which is 25% - 8.33% = 16.67%. However, since none of the provided options exactly matches this calculation, and the closest option to the correct calculation is C) 14.59 percent, it seems there might have been a mistake in the calculation or interpretation. The correct approach to calculate the effective yield would involve considering both the yield and the impact of the currency exchange rate change, but without the exact formula or method used in the options, the closest correct answer based on the given information and typical calculation methods would be to acknowledge a discrepancy in the provided options and calculations.