PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 27, Problem 13PS
a)
Summary Introduction
To determine: The number of dollars person X invest.
b)
Summary Introduction
To determine: Total return in dollar and pesos.
c)
Summary Introduction
To determine: Whether person X made exchange rate loss or profit.
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Suppose you are a euro-based Italian investor, and you are investing €11, 600 to buy shares of a
British company at £50 per share. The exchange rate is €1.45 per pound. The stock pays a £1 dividend
one year later, and you sell your shares for £53. The exchange rate has changed to €1.50 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 €1.36 per pound, what is your euro rate of return on this investment?
Suppose you are a euro-based Italian investor, and you are investing €10,400 to buy shares of a British company at £50 per share. The exchange rate is €1.30 per pound. The stock pays a £1 dividend one year later, and you sell your shares for £56. The exchange rate has changed to €1.35 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 €1.33 per pound, what is your euro rate of return on this investment? Note: Enter your answer as a percent rounded to 2 decimal places.
Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six
months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the
exchange rate was $0.95 per euro. Today, you sold the stock for $195 per share and converted the
dollar proceeds into euro at the exchange rate of $0.86 per euro.
What is the total rate of return on your investment in EUR terms?
O 35.4%
121.5%
O 15.4%
67.7%
Chapter 27 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 27 - Exchange rates Look at Table 27.1. a. How many...Ch. 27 - Exchange rates Table 27.1 shows the 3-month...Ch. 27 - Prob. 3PSCh. 27 - Prob. 4PSCh. 27 - Prob. 5PSCh. 27 - Prob. 6PSCh. 27 - Prob. 8PSCh. 27 - Prob. 9PSCh. 27 - Prob. 10PSCh. 27 - Currency risk Companies may be affected by changes...
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