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 $10,000.00.The exchange rate at that time was 1.435 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 dollar amount that the Swiss investor received at maturity:

Maturity value = $10,000.00
Exchange rate at maturity = 1.324 Swiss francs per dollar

Maturity value in Swiss francs = $10,000.00 x 1.324 = 13,240 Swiss francs

Next, we need to calculate the Swiss francs that the investor spent to buy the Treasury bill:

Purchase price = $9,708.74
Exchange rate at time of purchase = 1.435 Swiss francs per dollar

Purchase price in Swiss francs = $9,708.74 x 1.435 = 13,924.45 Swiss francs

The investor spent 13,924.45 Swiss francs to buy the Treasury bill and received 13,240 Swiss francs at maturity, which represents a loss of:

Loss = 13,924.45 - 13,240 = 684.45 Swiss francs

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

Annualized rate of return = [(Maturity value / Purchase price)^(1/n) - 1] x 100%

Where n is the number of periods in a year. In this case, n = 2 because the investment lasted for 6 months.

Plugging in the numbers, we get:

Annualized rate of return = [(13,240 / 13,924.45)^(1/2) - 1] x 100% = -0.0993 or -9.93%

Therefore, the answer is B.

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