Suppose a U.S. investor wishes to invest in a British firm currently selling for 50 pounds per share by buying 200 shares of the British firm. The current exchange rate is $1.31 per pound.  After one year, the exchange rate is $1.60 per pound and the share price is 59 pounds per share. What is the dollar-denominated return in percentage?

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A: r = 0.50

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A: PPP exchange rate  = (Base price level / current price level) *Base spot exchange rate .

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