Q7-Suppose interest rates are compounded discretely (not continuously compounded). Let rd be the domestic interest rate, rf foreign interest rate, and T time to maturity. Assume that a UK firm has A = 100 which it can invest in the UK or the USA for 1 year. Assume the quoted interest rates in the domestic (sterling) money market, the foreign (US) money market and the exchange rates are: rd 11% 10% rf S(0) .6667 1.5 $ $ F(0,T) = 0.6727 (1) 1.4865 1. If you convert 100 to dollars at time t = 0 at the spot rate and invest in the (US), how many dollars would you have at the end of 1 year? (10 pts.) Must show work to get credit. 2. If you enter into a forward contract today(t = 0) to sell $165 for delivery of sterling in 1 year's time. How many Sterling you have in one year ? (10 pts.) Must show work to get credit. Q7-Suppose interest rates are compounded discretely (not continuously compounded). Let rd be the domestic interest rate, rf foreign interest rate, and T time to maturity. Assume that a UK firm has A = 100 which it can invest in the UK or the USA for 1 year. Assume the quoted interest rates in the domestic (sterling) money market, the foreign (US) money market and the exchange rates are: rd 11% 10% rf S(0) .6667 1.5 $ $ F(0,T) = 0.6727 (1) 1.4865 1. If you convert 100 to dollars at time t = 0 at the spot rate and invest in the (US), how many dollars would you have at the end of 1 year? (10 pts.) Must show work to get credit. 2. If you enter into a forward contract today(t = 0) to sell $165 for delivery of sterling in 1 year's time. How many Sterling you have in one year ? (10 pts.) Must show work to get credit