Question

Mr. James K. Silber, an avid international investor, just sold a share of Néstle, a Swiss firm, for SF5,550. The share was bought for SF4,710 a year ago. The exchange rate is SF2.15 per U.S. dollar now and was SF2.00 per dollar a year ago. Mr. Silber received SF142 as a cash dividend immediately before the share was sold. Suppose that Mr. Silber sold SF4,710, his principal investment amount, forward at the forward exchange rate of SF2.17 per dollar. How would this affect the dollar rate of return on this Swiss stock investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

The dollar rate of return on this Swiss stock investment would be 10.50%.

Step-by-step explanation:

To calculate the dollar rate of return on this Swiss stock investment, we need to consider the initial investment, the final return (including the cash dividend), and the exchange rates for both periods.

1. Calculate the initial investment in USD: SF4,710 / SF2.00 = $2,355.00
2. Calculate the final return in USD: (SF5,550 + SF142) / SF2.15 = $2,602.33
3. Calculate the dollar rate of return: (($2,602.33 - $2,355.00) / $2,355.00) * 100 = 10.50%