(a)
To calculate:
The number of shares that an investor can purchase by investing
Introduction:
For investing in a British firm, investor of U.S. has to change its funds into the pound and then should compute the number of shares which he can invest in the firm.
Answer to Problem 3PS
The number of shares that can be purchased by investor in British firm is
Explanation of Solution
Given:
To calculate total number of shares, first total investment given in dollars should be converted to Euro which is calculated on the basis of Rate of Exchange and then, the total investment should be divided with current price per share.
Thus, number of shares that can be purchased is
(b)
To calculate:
The
Introduction:
For investing in a British firm, investor of U.S. has to change its funds into the pound and then should compute the number of shares which he can invest in the firm.
Answer to Problem 3PS
Below table highlights the values for all nine cases:
Per share price (£) | Pound-Denominated Return (%) | Dollar-Denominated Return (%) for year-end exchange Rate | ||
£ |
||||
£ |
||||
£ |
Explanation of Solution
Given:
Let's first calculate the pound-denominated return and for that, the following formula is used:
By using the above formula, Pound-denominated return is computed as follows:
Per share price (£) | Pound-Denominated Return (%) |
Now, calculate the dollar-denominated return and for that, the following formula is used:
By using the above formula, Dollar-denominated return is computed as follows:
Per share price (£) | Dollar-Denominated Return (%) for year-end exchange Rate | ||
(c)
To calculate:
The situation in which the dollar-denominated return will be equal to the pound-denominated return.
Introduction:
For investing in a British firm, investor of U.S. has to change its funds into the pound and then should compute the number of shares which he can invest in the firm.
Answer to Problem 3PS
The situation is when there will be no change in the exchange rates.
Explanation of Solution
Given:
The dollar denomination returns will be equal to the pound denomination return when there is no change over the exchange rate in one year even if the price of the share changes.
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Chapter 25 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
- Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. 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 Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %arrow_forwardSuppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£.Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario.arrow_forwardA US investor wishes to invest in a British firm currently selling for GBP 40 a share. He has $10 000 to invest, and the current exchange is $2/GBP. (a) How many shares can the investor purchase? (b) Given share prices of GBP 35, 40 and 45, and exchange rates of $/GBP 1.80, 2 and 2.20 respectively, calculate the $ and GBP rates of return for each of the nine scenarios (three possible prices per share in GBP times three possible exchange rates. (c) If each of the nine outcomes is equally likely, find the standard deviation of both the GBP and $ denominated rates of return.arrow_forward
- A US investor wishes to invest in a British firm currently selling for GBP 40 a share. He has $10 000 to invest, and the current exchange is $2/GBP. Required: (a) How many shares can the investor purchase? (b) Given share prices of GBP 35, 40 and 45, and exchange rates of $/GBP 1.80, 2 and 2.20 respectively, calculate the $ and GBP rates of return for each of the nine scenarios (three possible prices per share in GBP times three possible exchange rates. (c) If each of the nine outcomes is equally likely, find the standard deviation of both the GBP and $ denominated rates of return.arrow_forwardSuppose you are a euro-based Italian investor, and you are investing €10,400 to buy shares of a British company at £50 per share. The exchange rate is €1.30 per pound. The stock pays a £1 dividend one year later, and you sell your shares for £56. The exchange rate has changed to €1.35 per pound at the time of your sale. What is your pound rate of return on this investment and the change in pound-euro exchange rate? What is your euro rate of return? If you had agreed at the outset to sell £8,000 forward at the rate of €1.33 per pound, what is your euro rate of return on this investment? Note: Enter your answer as a percent rounded to 2 decimal places.arrow_forwardRequired: Suppose you are a euro-based Italian investor, and you are investing €11,200 to buy shares of a British company at £50 per share. The exchange rate is €1.40 per pound. The stock pays a £1 dividend one year later, and you sell your shares for £54. The exchange rate has changed to €1.45 per pound at the time of your sale. What is your pound rate of return on this investment and the change in pound-euro exchange rate? What is your euro rate of return? If you had agreed at the outset to sell £8,000 forward at the rate of €1.35 per pound, what is your euro rate of return on this investment? Note: Enter your answer as a percent rounded to 2 decimal places. Pound rate of return % _____ Change in pound-euro exchange rate % _______ Euro rate of return on €11200 inverstment % ___________ Euro rate of return on €8,000 forward sale % ________arrow_forward
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- Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $1.13 per euro. You sold the stock for $141 per share and converted the dollar proceeds into euro at the exchange rate of $1.04 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investmentarrow_forwardSuppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $1.13 per euro. You sold the stock for $141 per share and converted the dollar proceeds into euro at the exchange rate of $1.04 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate movement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal places.)arrow_forwardSuppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $0.97 per euro. You sold the stock for $189 per share and converted the dollar proceeds into euro at the exchange rate of $0.88 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate movement?arrow_forward
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