My first question for Level 3 on this forum. Yoohoo.
Please refer to EOC Q. 20 on page 153 of curriculum Volume 4.
Question asks for highest hedged return.
Solution calculates the hedged foreign bond return as = domestic bond return + excess return in local currency. This I understand.
Why could I not have calculated this as follows.
foreign bond return for UK = local return in UK (5.04) + currency appreciation (0.1) = 5.14 percent and so on.
If I had calculated this way, my answer would have been different from the solution.
Your response is much appreciated.