Question

Suppose you are a euro-based investor who just sold shares of a U.S. company that you had bought six months ago. You had invested 10,000 euros to buy theshares for $120 per share; the exchange rate was $1.03 per euro. You sold the stock for $171 per share and converted the dollar proceeds into euro at the exchange rate of $0.94 per euro.

Required:
Compute the rate of return on your investment in euro terms.

Answer 1

The rate of return on your investment in euro terms is 56.14%.

Step-by-step explanation:

Amount invested in euros = 10,000 euros

Amount invested in dollars = Amount invested in euros * Exchange rate at the time of purchase = 10,000 euros * $1.03 = $10,300

Number of shares bought = Amount invested in dollars / Cost price per share in dollars = $10,300 / $120 = 85.8333333333333

Proceeds from sales in dollars = Number of shares bought * Selling price per share in dollars = 85.8333333333333 * $171 = $14,677.50

Proceeds from sales in euros = Proceeds from sales in dollars / Exchange rate at the time of sales = $14,677.50 / $0.94 = 15,614.36 euros

Rate of return in euro terms = (Proceeds from sales in euros - Amount invested in euros) / Amount invested in euros = (15,614.36 - 10,000) / 10,000 = 0.5614, or 56.14%

Therefore, the rate of return on your investment in euro terms is 56.14%.