Question: Please show formula and step by step solution Assume that the U.S. one-year interest rate is 5% and the one-year interest rate on euros is

Please show formula and step by step solution

Assume that the U.S. one-year interest rate is 5% and the one-year interest rate on euros is 8%. You have $100,000 to invest and you believe that the international Fisher effect (IFE) holds. The euro's spot exchange rate is $1.40. What will be the yield on your investment if you invest in euros?

5.86%

2.78%

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