Calculations Shown

Assume the following information. • Current spot rate of Australian dollar = $0.64. • Forecasted spot rate of Australian dollar 1 year from now = $0.59. • 1-year forward rate of Australian dollar = $0.62. • Annual interest rate for Australian dollar deposit = 9%. • Annual interest rate in the United States = 6%. • Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is about _____%.

a) 9.00           

b) 5.59           

c) 7.33           

d) 8.14           

Could you show step by step what computations you need to find the correct answer?