An investor in the US bought a 1-year Brazilian security valued at 195,000 Brazi
ID: 2726430 • Letter: A
Question
An investor in the US bought a 1-year Brazilian security valued at 195,000 Brazilian reals. The US dollar equivalent was 100,000. The Brazilian security earned 16% during the year, but the Brazilian real depreciated 5 cents against the US dollar during the time period ($0.51 to $0.46). After transferring the funds back to the US, what was the investor's return on her $100,000? Determine the total ending value of the Brazilian investment in Brazilian reals and then translate this Brazilion value to US dollars. Then compute the return on the $100,000. Please show all work
Explanation / Answer
value of 1 year brazillian security bought by us investor = 195,000 brazillian reals
equvalent dollers per such investment = $ 100000
maturity value of 1year brazillian security at the end of the year = 195000+(195000*16%)=226200 brazillian reals
Exchange rate at the end of the year = 0.46$/brazillian real
Number of dollars received in exchange of 226200 brazillian reals = 226200*0.46=$104052
Return on investment = (104052-100000)/100000*100=4.052%
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