in Problem #7: One year ago, a U.S. investor converted dollars to yen and purcha
ID: 2800885 • Letter: I
Question
in Problem #7: One year ago, a U.S. investor converted dollars to yen and purchased 100 shares of stock a Japanese company at a price of 3,150 yen per share. The stock's total purchase cost was 315,000 yen. At the time of purchase, in the currency market I yen equaled $0.00952. Today, the stock is selling at a price of 3,465 yen per share, and in the currency market S1 equals 130 yen. The stock does not pay a dividend. If the investor were to sell the stock today and convert the proceeds back to dollars, what would be his realized return on his initial dollar investment from holding the stock?Explanation / Answer
Initial investment in Yen = 315000 yen
Initial investment in dollars = 315000 yen * exchange rate $/yen = 315000yen * $0.00952/yen = $2998.8
Price of 100 shares now in yen= 100*3465 = 346500 yen
Price of 100 shares now in dollars = 346500 yen / exchange rate (yen/$) = 346500 yen / (130yen/$) = $2665.38
Return in dollars = $(2665.38 - 2998.8) = $(- 333.42)
Realized return = -333.42/2998.8 = -11.11%
The investor will lose 11.11% on his dollar investment
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