Question: Suppose that the return on dollar bonds for 2 years is K$=3%, the present exchange rate is S(0)=1.2 dollars to a pound, and the forward

  1. Suppose that the return on dollar bonds for 2 years is K$=3%, the present exchange rate is S(0)=1.2 dollars to a pound, and the forward rate for delivery date T=2 is F=1.2 dollars to a pound. How much should a sterling bond cost today if it promises to pay 100 at time T?

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