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Calculate the real dollar rate of return on a 10,000 pound sterling deposit in a London bank in a year when the interest rate on pounds is 6 ​percent, the​ dollar/pound exchange rate moves from ​$1.31 per pound to ​$1.65 per​ pound, and the dollar prices increase by 9 percent. The real rate of return will be nothing percent ​(Enter your response as a percentage rounded to one decimal place.​)

Answer :

Answer:

The real rate of return is 23.0%.

Explanation:

This can be calculated as follows:

Gain due to dollar depreciation = (1.65 - 1.31) / 1.31 = 0.260, or 26.0%

Inflation rate = Increase in dollar price = 9%

Real rate of return = (Gain due to dollar depreciation + Interest rate on pounds) - Inflation rate = (26.0% + 6%) - 9% = 23.0%

Therefore, the real rate of return is 23.0%.

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