Question

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 $1.15 per euro. You sold the stock for $135 per share and converted the dollar proceeds into euro at the exchange rate of $1.06 per euro. First, determine the profit from this investment in euro terms.

Answer 1

Final answer:

To determine the profit from the investment in euro terms, divide the invested amount in dollars by the exchange rate at the time of purchase to calculate the initial investment in euros. Then, multiply the selling price in dollars by the exchange rate at the time of sale to calculate the proceeds from selling the stock in euros. Finally, subtract the initial investment from the selling proceeds to find the profit in euro terms.

Step-by-step explanation:

To determine the profit from the investment in euro terms, we need to calculate the initial investment in euros and the proceeds from selling the stock in euros.

The initial investment in euros can be calculated by dividing the invested amount in dollars by the exchange rate at the time of purchase. So, 10,000 euros = 10,000 / 1.15 = 8,695.65 euros.

The proceeds from selling the stock in euros can be calculated by multiplying the selling price in dollars by the exchange rate at the time of sale. So, 13,500 dollars = 13,500 * 1.06 = 14,310 euros.

The profit from this investment in euro terms is the difference between the selling proceeds (14,310 euros) and the initial investment (8,695.65 euros), which is equal to 5,614.35 euros.