Suppose a U.S. investor wishes to invest in a British firm currently selling for

Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £85 per share. The investor has $57,800 to invest, and the current exchange rate is $4/£. 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 Pound-Denominated Dollar-Denominated Return (%) for Year-End Exchange Rate Share (£) Return (%) $3.90/£ $4.00/£ $4.10/£ £ 76.50 % % % % £ 85.00 % % % % £ 93.50 % % % %

Explanation / Answer

Answer Share Value 85 Pond Exchange Rate $4/Pond Investment value $57,800 Investment in Pond 14450 No. of Shares purchased =14450/85 No. of Shares purchased = 170 No. Share Price in Pond / Year End Exchange Rate 76.50 85.00 93.50 $ 3.90/pond -12.25% -2.50% 7.25% $ 4.00/pond -10.00% 0% 10.00% $ 4.10/pond -7.75% 2.50% 12.75% Working Share Value at the end of year Share Price No. of Shares Value of investment in pond $ /pond Investment value in $ Return in Dollar (E-57800)/57800*% A B C D E F 76.50 170.00 13005.00 3.90 50719.50 -12.25% 85.00 170.00 14450.00 3.90 56355.00 -2.50% 93.50 170.00 15895.00 3.90 61990.50 7.25% 76.50 170.00 13005.00 4.00 52020.00 -10.00% 85.00 170.00 14450.00 4.00 57800.00 0.00% 93.50 170.00 15895.00 4.00 63580.00 10.00% 76.50 170.00 13005.00 4.10 53320.50 -7.75% 85.00 170.00 14450.00 4.10 59245.00 2.50% 93.50 170.00 15895.00 4.10 65169.50 12.75%

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