Question

Q.1 (a) You loaned a Mexican business $100,000. However, the business is repaying the loan in Mexican pesos. The exchange rate was $1 = 100 pesos on the day of the loan but had changed to $1 = 150 pesos; what happened to the value of your investment?

(b)Calculate the retained earnings of a corporation at the end of the year if retained earnings were $20,000 at the beginning of the year, net income was $50,000, declared $60,000 in dividends, and sold $50,000 in additional stock

(c)You bought stock for a new internet company for $125 per share last year and paid a $0.50 dividend per share. Unfortunately, the company faces bankruptcy, and you quickly sell your shares for $115. Calculate your rate of return for this investment.

Answer 1

	A
			$	Mexican Pesos	Exchange Rate
		Investment	1,00,000	1,00,00,000	$1=100 Pesos
		Value of Investment	1,00,000	1,50,00,000	$1=150 pesos
			$
	B	Retained Earning-Opening Balance	20,000
		Add:Net Income	50,000
		Less: Dividend	60,000
		Retained Earning-Closing Balance	10,000
	C	Dividend	0.50
		Initial Share Price	125
		Dividend Yield	0.40%
		Current Share Price	115
		Capital loss	-10
		Capital loss yield	-8.00%
		Total Percentage return=Dividend yield+Capital Gain/loss yield
		Total Percentage return	-7.60%