Question: Suppose that there is a 0 . 5 5 % probability that the government of Argentina nationalizes its banking system and freeze all foreign deposits

Suppose that there is a

0.55 %

probability that the government of Argentina nationalizes its banking system and freeze all foreign deposits and definitely during the next year. If the dollar deposit interest rate in the United States is

5 %,

what dollar interest would Argentine banks have to offer in order to attract deposits from foreign investors?

10 .

If the market price of a

20

year pure discount bond with the face value of $

1000

is $

214.55,

what is the spot interest rate for the

20

year maturity expressed in percentage per annum?

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