Question

A U.S. investor owns a bond denominated in Mexican pesos. If the bond earned 8% while the value of the peso increased against the U.S. dollar by 4%, the investor's total return was

Answer 1

The investor's total return is 12% (8% + 4%)

Step-by-step explanation:

The investor's total return can be calculated by adding the bond's interest earned to the change in value of the peso against the US dollar. The bond earned 8% in interest, so the investor received 8% of the bond's face value as income.

Since the value of the peso increased by 4% against the US dollar, the investor also received a 4% capital gain when converting the peso-denominated bond back into US dollars. Therefore, the investor's total return is 12% (8% + 4%).