IN Assessment- Chung case Q # 6:
The paragraph reads: The expected (local currency) return on the bonds is 8.50 percent, and the 1-year risk-free yields are 1.3 percent in the U.S. and 4.6 percent in Australia. The spot exchange rate is USD0.69/AUD and the one-year forward rate is USD0.67/AUD.
Q: Given the exchange rate and interest rate data provided, if the Australian currency risk is fully hedged, the bond’s expected return will be closest to: A. 3.90%. B. 5.20%. C. 5.60%.