Score: 0 of 10 pts 8 of 10 (2 complete) HW Score: 20%, 20 of 100 pts P8-16 (simi

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Score: 0 of 10 pts 8 of 10 (2 complete) HW Score: 20%, 20 of 100 pts P8-16 (similar to) Question Help 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 2,000 shares at 18.50 pesos per share. Twelve months later, he sold them at 23.50 pesos per share. He received no dividends during that time. a. What was Joe's investment retum (in percentage terms) for the year, on the basis of the peso value of the shares? b. The exchange rate for pesos was 9.07 pesos per USS1.00 at the time of the purchase. At the time of the sale, the exchange rate was 9.56 pesos per US$1.00. Translate the purchase and sale prices into US$ c. Calculate Joe's investment return on the basis of the USS value of the shares. d. Explain why the two returns are different. Which one is more important to Joe? Why? a. 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,) Enter your answer in the answer box and then click Check Answer. parts Clear All Check Answer

Explanation / Answer

Return on the basis of peso value of shares=(2000*23.5-2000*18.5)/(2000*18.5)=27.027%

Initial purchase price per share=18.5/9.07=$2.039691

Total purchase amount=2000*2.039691=$4079.382

Selling price per share=23.5/9.56=$2.458159

Total selling amount=2000*2.458159=$4916.318

So, return on the basis of $ value of shares=(4916.318-4079.382)/4079.382=20.5162%

The returns are different because of exchange rate movements.

Dollar returns is important because that is the return he is finally pocketing on his investment

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