What is the answer?

31. Answer this question according to solutions presented in tutorials. Show you step-by-step denvation and calculation with explanation or a zero will be assigned. Consider the followmg prices for government bonds and foreign exchange in Canada and the United States. Assume that both govemment securities are one-year bonds, paying the face value of the bond one year from now. The exchange rate E stands at US$I = C$O.95. Canada United States I -year bond I-year bond Face Value c$loooo US$13333 Pnce c$9615.38 US$12698.10 (a) (b) (c) (d) Compute the nominal interest rate on each of the bonds. (2 marks) Compute the expected exchange rate next year consistent with the uncovered interest parity (5 marks) If you expect the Canadian dollar to depreciate relative to the American dollar, which bond should you buy? (2 marks) Assume you are a Canadian investor. You exchange your dollars for U.S. dollars and purchase the Amencan bond. One year from now, it tums out E is actually 0.90 (US$I = C$O.90). is your realized retum in Canadian dollars compared with the realized return you would have made had you held the Canadian dollar bond? Can you provide a more precise answer? (9 marks) Are the differences in returns in (d) consistent with the uncovered interest panty condition? WIIY, or why not? (2 marks)