Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 27, Problem 17PS
a)
Summary Introduction
To determine: The number of dollar person X invest.
b)
Summary Introduction
To determine: Total return in dollar and pesos.
c)
Summary Introduction
To determine: Whether person X made exchange rate loss or profit.
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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 % ________
Suppose 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.
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Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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