You are a U.S. investor considering purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the 6-month discount on Canadian dollar forward contracts is 2 .75% versus the U.S. dollar.

Calculate the expected price change required in the Canadian government bond that would result in the two bonds having equal total returns in U.S. dollars over a 6-month horizon. Assume that the yield on the U.S. bond is expected to remainunchanged.

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Bond U.S. government Canadian government 6months 7.50% 100.00 Maturity Coupn Price 6months 6.50% 100.00