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Questions 27-30 are based on the following information: Albert Richard is a Canadian investor who is...

Questions 27-30 are based on the following information:

Albert Richard is a Canadian investor who is considering buying shares of the U.S. high tech firm RaDiCal. The shares of RaDiCal are currently selling for USD20.00. Albert forecasts that these shares will be selling for USD24.00 in one year immediately after the payment of a USD1.00 dividend. The indirect spot rate for USD from a Canadian perspective is USD0.750000/CAD. Albert forecasts that the indirect spot rate in one year will be USD0.937500/CAD.

27) What is Albert’s rate of return in USD if he buys the RaDiCal shares?

a) - 20.00%

b)      0.00%

c) + 12.50%

d) + 25.00%

e) None of the above

28) What will be Albert’s foreign exchange (FX) rate of return?

a) - 20.00%

b)      0.00%

c) + 12.50%

d) + 25.00%

e) None of the above

29) What is Albert’s rate of return in CAD if he buys shares of RaDiCal?

a) - 20.00%

b)      0.00%

c) + 12.50%

d) + 25.00%

e) None of the above

30) Suppose that Albert buys CAD in the forward market for USD0.833333/CAD. What will now be Albert’s rate of return in CAD if he buys shares of RaDiCal?

a) - 20.00%

b)      0.00%

c) + 12.50%

d) + 25.00%

e) None of the above

Solutions

Expert Solution

Albert Richard is a Canadian investor who is considering buying shares of the U.S. high tech firm RaDiCal. The shares of RaDiCal are currently selling for USD20.00. Albert forecasts that these shares will be selling for USD24.00 in one year immediately after the payment of a USD1.00 dividend. The indirect spot rate for USD from a Canadian perspective is USD0.750000/CAD. Albert forecasts that the indirect spot rate in one year will be USD0.937500/CAD.

27) What is Albert’s rate of return in USD if he buys the RaDiCal shares?

d) + 25.00%

28) What will be Albert’s foreign exchange (FX) rate of return?

a) - 20.00%

29) What is Albert’s rate of return in CAD if he buys shares of RaDiCal?

b)      0.00%

30) Suppose that Albert buys CAD in the forward market for USD0.833333/CAD. What will now be Albert’s rate of return in CAD if he buys shares of RaDiCal?

c) + 12.50%

ekkarill92 answered 2 years ago
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