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Foundations Of Financial Management
Found in: Page 682
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

A Peruvian investor buys 150 shares of a U.S. stock for $7,500 ($50 per share). Over a year, the stock goes up by $4 per share.

  1. If there is a 10 percent gain in the value of the dollar versus the Peruvian nuevo sol, what will be the total percentage return to the Peruvian investor? First, determine the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by $7,500 and get a percentage value, and then subtract 100 percent to get the percentage return.
  2. Instead assume that the stock increases by $7, but that the dollar decreases by 10 percent versus the nuevo sol. What will be the total percentage return to the Peruvian investor? Use 0.90 in place of 1.10 in this case.

  1. The total percentage return to the Peruvian investor is 18.8%.
  2. The total percentage return to the Peruvian investor is 2.6%.
See the step by step solution

Step by Step Solution

Step 1: Investment

Investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for profit.

Step 2: Answer (a)

a. Determining the new dollar value of the investment

b. Multiplying the new dollar value by 1.10

c. Calculating the total percentage return

Subtract 100 percent to get the percentage return

Step 3: Answer (b) 

The total percentage return to the Peruvian investor is 2.6%

a. Determining the new dollar value of the investment

b. Multiplying the new dollar value by 0.9

c. Calculating the total percentage return

Subtracting 100% to get the percentage return

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