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 pound20 per share. The investor has dollar 3,800 to invest, and the current exchange rate is dollar2/pound .How many shares can the investor purchase? Number of shares 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.)

Explanation / Answer

a) Computation of number of shares can the investor purchase Amount held by investor to invest in shares of british firm $3,800 Current sellin price of the british firm share £20 Current exchane rate $2/£ Convert the $ amount in to £ ($3,800/$2 per £) £1,900 Therefore number of shares that can be purchased (£1,900/£20) 95 shares Share purchase price in $ $40 b) Dollar denominated return (%) For year end exchange rate Price per share (£) Pound- Denominated return% $1.60/£ $2.00/£ $2.40/£ £14.50 -27.50% Calculation = (£14.50-£20)/£20 -42% Calculation=($23.20-$40)/$40 -27.50% Calculation=($29-$40)/$40 -13% Calculation=($34.80-$40)/$40 £20.00 0% Calculation =(£20-£20)/£20 -20% Calculation=($32-$40)/$40 0% Calculation=($40-$40)/$40 20% Calculation=($48-$40)/$40 £25.50 27.50% Calculation=(£25.50-£20)/£20 2% Calculation=($40.80-$40)/$40 27.50% Calculation=($51-$40)/$40 53% Calculation=($61.20-$40)/$40

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