Question

Suppose an American investor buys a share of a UK stock priced at 10 and sells the stock one year later at 11 after collecting a 1 dividend per share (pays at YE). Suppose his spot rates at purchase and sold are:

$1.50= 1 and $1.45= 1 respectively.

Calculate his USD pretax return, enter percentage round to 2 decimal places.

Answer 1

16%

Step-by-step explanation:

Amount invested = 10 pound

Spot Rate at investment = 1 Pound = $1.50

Dollar Investment = 10*1.50 = $15

Total Gain = Dividend + Capital Gain

Total Gain = 1 + (11-10)

Total Gain = 2 Pound

Total Return value = 10 + 2

Total Return value = 12 pound

Return in $ = 12 Pound at 1.45

Return in $ = $17.40

Pretax Return = $17.40 - $15

Pretax Return = $2.40

% Return = Net Return / Investment

% Return = 2.40 / 15

% Return = 0.16

% Return = 16%