What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%

B. 11%

Explanation:

Recall that

Dollar return on euros = Euro interest rate + [ (current exchange rate per euro - initial exchange rate per euro) : initial exchange rate per euro]

Given that

Euro interest rate = 0.05 or 5%

Initial exchange rate = 1.10

Current exchange rate = 1.165

Therefore

Dollar return on Euros = 0.05 + [ (1.165 - 1.10) : 1.10]

= 0.05 + [0.065 : 1.10]

= 0.05 + 0.059

= 0.109

OR

= 10.9 %

= 11%