Question

You are a U.S. investor who invested $450,000 in India five years ago. Assume that your investment gained 7 percent per year. If the exchange rate moved from 70.7 rupees per dollar to 73.0 rupees per dollar over the five-year period, what was your total return on this investment? (Use Excel or BAII+ to answer this question. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Solution

exchange rate 5 years ago= 70.7 rupees/$

Hence 1 rupee = 1/70.7 $

Initial investment = $ 450000

Hence outflow in terms of rupees at the time of investment = 450000x70.7

i.e. rupees 31815000

Gain every year = 7%

Hence total value in rupee terms at the end of 5 years = investment x(1+rate of gain)^n

= 31815000x (1.07)^5

=Rupees 44622183.31

Exchange rate today = 73 rupees/$

Hence 1 rupee = 1/73 $

Dollar inflow at the end of 5 years i.e. Rupees 44622183.31 in $ terms

= 44622183.31 x1/73

= $611262.79

Total return on the investmet = (ending value- begnning value)/begnning value x100

i.e. ($611262.29-$450000)/$450000x100

i.e. 35.84%

Hence total return on this investment is 35.84%