Question
In: Finance
A French investor sold IBM stocks she bought one year ago. She had invested 1,000 Euros...
A French investor sold IBM stocks she bought one year ago. She had invested 1,000 Euros to buy IBM shares for $50 per share and sold the shares for $56.25 per share. The exchange rate was $/€ = 1.15 at the beginning and $/€ = 1.4504 at the end of the period.
What is the Return on investment in Euro terms? It says the answer is -10.81%
Solutions
Expert Solution
Sol:
Initial investment in euros = 1000
Share purchase price = $50 per share
Share sold price = $56.25 per share
Exchange rate at the time of share purchase - $/€ = 1.15
Exchange rate at the time of share sold - $/€ = 1.4504, Now 1€ = 1/1.4504 = 0.6894 euro
Initial investment value in $ = Initial investment in euros x Exchange rate at the time of share purchase
Initial investment value in $ = 1000 x 1.15 = $1150
No of share purchase = $1150 / $50 = 23
Share sold value = No of share purchase x share sold price
Share sold value = 23 x $56.25 = $1293.75
Payment in Euro = Share sold value x 0.6895 euro
Payment in Euro = 1293.75 x 0.6894 = 891.91125
Return on investment in Euro terms = Payment in Euro - Initial investment in euros
Return on investment in Euro terms = 891.91125 - 1000 = -108.08875
Return on investment in Euro terms = (-108.08875/1000) x 100 = -10.81% (approx)
Therefore return on investment in Euro terms is approximate -10.81%
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