Exam 15: International Portfolio Investment

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A 5%-annual coupon British has a par value of £1,000, matures in five years, and has a yield to maturity of 4%. The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S. and 2% in the U.K. per year for the next five years. If a dollar-based investor used forward contracts to redenominate this bond into dollars, what would be his rate of return?

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