A one-year Japanese security is currently yielding 5%. Furthermore, it is expected that the exchange rate between the dollar and the yen is changing from 98 yen to the dollar, to 95 yen to the dollar over the next year. To invest in U.S. security rather than Japanese security, you would need a return at least equal to what value?
Thus investing in Japanese security not only gives yield of 5% but also currency appreciation of 3.06%. So to invest in US security we need at least both the above returns which will be 8.06%