Suppose 6 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 1.441 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? Do not round the intermediate calculations and round the final answer to two decimal places.

Question

Quizplus · Accepted Answer

First, we need to calculate the return in Swiss francs by using the exchange rates:

Maturity value in Swiss francs = Maturity value in dollars * Exchange rate at maturity
Maturity value in Swiss francs = $10,000 * 1.324 = 13,240 Swiss francs

Purchase price in Swiss francs = Purchase price in dollars * Exchange rate at purchase
Purchase price in Swiss francs = $9,708.74 * 1.441 = 13,975.57 Swiss francs

Return in Swiss francs = Maturity value in Swiss francs - Purchase price in Swiss francs
Return in Swiss francs = 13,240 - 13,975.57 = -735.57 Swiss francs

Now we can calculate the annualized rate of return using the following formula:

Annualized rate of return = (1 + total return)^[(365/days held)] - 1

In this case, the Treasury bill was held for 6 months or 0.5 years.

Annualized rate of return = (1 - 735.57/13,975.57)^[365/0.5] - 1
Annualized rate of return = (-0.0527)^[730] - 1
Annualized rate of return = -0.1073 or -10.73%

Therefore, the annualized rate of return to the Swiss investor is -10.73%. The answer is B.

Suppose 6 Months Ago a Swiss Investor Bought a 6-Month