robbins corp. frequently invests excess funds in the mexican money market. one year ago, robbins invested in a one-year mexican money market security that provided a yield of 25 percent. at the end of the year, when robbins converted the mexican pesos to dollars, the peso had depreciated from $.12 to $.11. what is the effective yield earned by robbins?

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04-11-2022
Business

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robbins corp. frequently invests excess funds in the mexican money market. one year ago, robbins invested in a one-year mexican money market security that provided a yield of 25 percent. at the end of the year, when robbins converted the mexican pesos to dollars, the peso had depreciated from $.12 to $.11. what is the effective yield earned by robbins?

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Qwline Qwline · Answer 1 · 2022-11-08T04:22:29-05:00

The effective yield earned by robbins is 14.59%

The overall return or profit an investor obtains on investment is known as an effective annual yield. . An effective annual yield accounts for compound interest or compound investment returns, while nominal yield only includes the interest rate par value that an investor receives from the bond issuer.

Combined rate of return = {(1+rate of return)* (1+rate of return)}-1

In this case rate of return from the money market = 0.25

Rate of return from peso depreciation = (0.11-0.12)/0.12=-0.08333

Combined rate of return = {(1+0.25)* (1-0.08333)}-1

The combined rate of return = 0.1459*100 = 14.59%

The combined rate of return = 14.59%

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