Problem 25-4 Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, a he current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three possible exchange rates at $1.8/£, $2/£, and $2.2/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchan ates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Standard deviation of pound-denominated return % Standard deviation of dollar-denominated return %

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Problem 25-4
Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, and
the current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three
possible exchange rates at $1.8/£, $2/£, and $2.2/£ after 1 year. Calculate the standard deviation of both the pound- and dollar-
denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange
rates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
%
%
Standard deviation of pound-denominated return
Standard deviation of dollar-denominated return
Transcribed Image Text:Problem 25-4 Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three possible exchange rates at $1.8/£, $2/£, and $2.2/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % % Standard deviation of pound-denominated return Standard deviation of dollar-denominated return
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