International investment returns Personal Finance Problem Joe Martinez, a U.S. c

Question

International investment returns Personal Finance Problem Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 16.50 pesos per share. Twelve months later, he sold them at 21.25 pesos per share. He received no dividends during that time. What was Joe's investment return (in percentage terms) for the year, on the basis of the peso value of the shares? The exchange rate for pesos was 8.75 pesos per US$1.00 at the time of the purchase. At the time of the sale, the exchange rate was 9.28 pesos per US$1.00. Translate the purchase and sale prices into US$. Calculate Joe's investment return on the basis of the US$ value of the shares. Explain why the two returns are different. Which one is more important to Joe? Why? Joe's investment return (in percentage terms) for the year, on the basis of the peso value of the shares is %. (Round to two decimal places.)

Explanation / Answer

A. Percentage Return = [(21.25 - 16.50) / 16.50] x 100 = 28.79%

B.

Purchase

16.50 Pesos ($1 / 8.75 pesos = $1.885714 per share

1000 shares purchased for $1885.71

Sale

21.25 pesos ($1 / 9.28 Pesos) = $2.289871

1000 shares sold for $2289.87

C. Investmetn Return in U.S. Dollars

[($2289.71 - $1885.71) / $1885.71] x 100 = 21.43%

D. The two returns are differen due to the fluctuating currency exchange rates. The second return is most important because Joe lives in the U.S. so this measures his actual return as well as how much of his investment will be taxed.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.