Expected return on investment in US and Brazilian bonds
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You want to invest your $6000 in a financial asset. In 2020, one-year US bonds pay an interest of 3% while one-year Brazilian bonds pay an interest of 7%.
Current exchange rate, E2020, is 3.7 ($1 = 3.7 BRL). Calculate the expected return on investing in US and Brazilian bonds and make your investment decision for the following expected exchange rates:
a) E2021 =3.2
b) E2021 =4.2
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Solution Summary
Solution depicts the steps to choose a economical investment based upon expected returns in two scenarios.
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a)
Let the investment is made in US bonds
Expected return in US bonds=3%
Now assume that the investment is made in Brazilian bonds
Investment in Brazil bonds=6000*3.70=22200 BRL
Expected accumulated amount at the end ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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