Question

Somebody decide to sell his 10.000 dollars at 6.80 Tl = 1 US Dollar. With he Turkish lira he decides to buy a discounted bond with 6 months maturity at a price of 0.95 Tl . At the end of the maturity the available Tl is reconverted to US dollar at 6.70 Tl = 1 US dollar. Estimate the profit in terms of US dollars that this person has made and the corresponding annual earning rate.

Answer 1

Person have 10,000

1 US Dollars = 6.8 Turkish Lira

10,000 Dollars can buy 10,000 * 6.8 = 68,000 Turkish Lira

This 68,000 Turkish Lira is used to buy bonds at a discounted rate of 0.95 which means after 6 months 68,000 Turkish Lira will becomes (68,000 / 0.95) = 71,578.94

This 71,578.94 Turkish Lira is converted back to US Dollar when 6.7 Turkish Lira = 1 US Dollar which means 71,578.94 / 6.7 = 10,683.42 US Dollar can be purchased.

Profit in terms of US Dollar = 10,683.42 - 10,000 = 683.42 US Dollar.