Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2 per £. Required: a. How many shares can the investor purchase? Note: Round your answer to the nearest whole number. Number of shares 125 b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). Note: Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Price per Share (£) Pound-Denominated Dollar-Denominated Return (%) for Year-End Exchange Rate Return (%) $1.80 per £ $2.00 per £ $2.20 per £ £ 35 % % % % £ 40 % % % % £ 45 % % % %

Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2 per £. Required: a. How many shares can the investor purchase? Note: Round your answer to the nearest whole number. Number of shares 125 b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). Note: Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Price per Share (£) Pound-Denominated Dollar-Denominated Return (%) for Year-End Exchange Rate Return (%) $1.80 per £ $2.00 per £ $2.20 per £ £ 35 % % % % £ 40 % % % % £ 45 % % % %

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter17: Multinational Financial Management

Section: Chapter Questions

Problem 4DQ

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Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $12,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? (Round your answer to the nearest whole number.) Number of shares b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). (Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.) Price per Share (E) £ £ £ 150 39 44 49 Pound-Denominated Dollar-Denominated Return (%) for Year-End Exchange Rate Return (%) $1.60/E $2.00€ $2.40/E % % % % % % % % % % % %
Suppose a U.S. investor wishes to invest in a British firm currently selling for £100 per share. The investor has $24,000 to invest, and the current exchange rate is $2/£. Required:a. How many shares can the investor purchase? (Round your answer to the nearest whole number.) b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). (Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $12,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? (Round your answer to the nearest whole number.) Number of shares b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). (Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "O" wherever required. Negative amounts should be indicated by a minus sign.) Dollar-Denominated Return (%) for Year-End Exchange Rate Price per Share (£) Pound-Denominated Return (%) $1.60/£ $2.00/£ $2.40/£ % % % % % £ 36 % % % % £ 41 % £ 46 % %
Suppose you start with buying a stock in £ (equivalent to $100) when the exchange rate is £1 = $1.5. One year later, the stock price changes to £75, and you sell it. At the time of the sale, the exchange rate is £1 = $1.6. What is your total percentage return? What percentage of your return is due to the exchange rate? Total return = 12.50%; Exchange rate return = 6.67%. Total return = 20%; Exchange rate return = 7.50%. Total return = 20%; Exchange rate return = 0.0%. Total return = 12.50%; Exchange rate return = 7.50%. Total return = 0.0%; Exchange rate return = 7.50%. Total return = 20%; Exchange rate return = 6.67%.
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? Number of shares = b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates). (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Price per Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %
uppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Required:a. How many shares can the investor purchase? (Round your answer to the nearest whole number.) b. Fill in the table below for dollar-denominated rates of return after one year in each of the nine scenarios (three possible share prices denominated in pounds times three possible exchange rates). (Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)
Required: Suppose you are a euro-based Italian investor, and you are investing €11,200 to buy shares of a British company at £50 per share. The exchange rate is €1.40 per pound. The stock pays a £1 dividend one year later, and you sell your shares for £54. The exchange rate has changed to €1.45 per pound at the time of your sale. What is your pound rate of return on this investment and the change in pound-euro exchange rate? What is your euro rate of return? If you had agreed at the outset to sell £8,000 forward at the rate of €1.35 per pound, what is your euro rate of return on this investment? Note: Enter your answer as a percent rounded to 2 decimal places. Pound rate of return % _____ Change in pound-euro exchange rate % _______ Euro rate of return on €11200 inverstment % ___________ Euro rate of return on €8,000 forward sale % ________
Assume that you have invested $100,000 in Japanese equities. When purchased the stock's price and the exchange rate were V100 and V100/$1.00 respectively. At selling time, one year after purchase, they were Y110 and V110/51.00. If the investor had sold V10,000,000 forward at the forward exchange rate of V105/$1.00 the dollar rate of return would be: ⒸA. 28.00% ●B.-9.09% OC 4.32% OD 27.27%
A European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.
Consider a two-period binomial tree model with u = 1.1 and d = 0.90. Suppose the current price of the stock is $50 and the nominal interest rate is 2%. What is the value of an American put with a strike price of $60 that will expire in 3 months? Use at least four decimal places for those questions that require a numerical answer.
2. Answer both questions: a. You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment if the year-end stock prices turn out to be $38, $40, and $42? What is your real (inflation-adjusted) rate of return in each case, assuming an inflation rate of 3%? b. Consider the following information on the returns on stock and bond investment. Scenario Profitability Stocks Bonds Recession .2 -5% +14% Normal Economy .6 +15% +8% Boom .2 +25% +4% i) Calculate the expected rate of return and standard deviation in each investment. ii) Do your results support or contradict the historical record on the relationship between risk and return in the financial market in both Canada and the United States? iii) Which investment would you prefer? Explain your answer.
(a) Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock. One year after investment, the stock pays a £1 dividend, and sells for £55 the exchange rate has changed from €1.25 per pound to €1.30 per pound. (b) Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock using 50 percent margin. One year after investment, the stock pays a £1 dividend, and sells for £54. In the meantime, the exchange rate has changed from €1.25 per pound to €1.30 per pound. The interest on the margin loan is 1 percent per year. The margin loan was denominated in pounds.