In September 2014, a U.S. investor chooses to invest $500,000 in German equity securities at a...

In September 2014, a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.25/euro. At the end of one year the spot rate is $1.45/euro.

How many German equity shares will the U.S. investor acquire with his initial $500,000 investment if the cost at purchase was €50?

What dollar return (in %) does an investor earn if they sell shares for €57 and the share cost at purchase was €50, given that the exchange rate has risen from $1.25/euro to $1.45/euro?

Solutions

Expert Solution

Particulars	Amount
Investment in USD	500,000.00
/ exchange rate spot	1.25
EURO investment	400,000.00
/ price per share	50.00
Number of shares bought	8,000.00

Number of shares bought	8,000.00
× share price after one year	57.00
Amount realized in EURO	456,000.00
× exchange rate	1.45
Amount realized in USD	661,200.00
Less: investment	(500,000.00)
Return in USD	161,200.00
/ investment in USD	500,000.00
Percent return in USD	32.24%

German equity shares bougt was 8,000

Percent return in USD is 32.24%

Dollar return is $161,200

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jeff jeffy answered 1 year ago

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