Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £25 per share. The investor has $14,400 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £21, £26, and £31 after 1 year. Also, consider three possible exchange rates at $1.7/£, $2/£, and $2.3/£ after 1 year. Calculate the standard deviation of both the pound- and dollar-denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) X Answer is not complete. Standard deviation of pound-denominated return 16.33 % % Standard deviation of dollar-denominated return

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

v O C Ax 2 - 06:32 ENG 16-03-2020 E21 ... o X HI1 X ✓ fx HE HE HI HJ HG HH POUND DENOMINATED STANDARD DEVIATION HK HL HM HN - PURCHASE PRICE (PO)= 25.00 ou + w N EXPECTED RETURN PRICE (P1) PROB VARIANCE PROB*(D- E(D))^2 B*C=D 00 (P1-PO)/PO*100 RETURN В (%) -16.00% 4.00% 24.00% 1/3 = 0.33333 0.333333 0.33333 0.33333 21.00 26.00 31.00 4141 -5.3333% 1.3333% 7.9999% 3.9999% 1.33% 0.00% 1.33% 2.67% Ə 12 E(D) 13 14 STANDARD DEVIATION = SQRT(VARIANCE) STANDARD DEVIATION = SQRT(HL12))= 15 ANSWER 16.33% 16 DOLLAR DONIMATED STANDARD DEVIATION 22 23 24 ... UTILITY, SHARPE, betaCoNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio ... +

06:33 Ovo a 1x 2 ENG, 16-03-2020 21 ... o X HF18 X ✓ fx HE HG HH - HI HJ HK HL HM HNA 21 E DOLLAR DONIMATED STANDARD DEVIATION CONVERTING PRICES IN $ TERMS PO = 25.00 PO (IN DOLLARS ) = 25 X 2 = $50 EXCHANGE RATE PRICE 22. 23 24 1.70 $ 2.00 $ 2.30 25 (P1) 21.00 48.3 [=21 X 2.30) 35.7 44.2 59.8 26.00 31.00 28 52.7 71.3 [31 X 2.30] 29 [31 X 1.70] 32 1/9 = 0.11111 EXPECTED RETURN CALCULATION OF STANDARD DEVIATION PRICE ($) (P1-P0)/PO*100 (P1) RETURN (%) А 33 PROB VARIANCE PROB*(D-E(D))^2 34 B*C =D 35 36 37 38 39 ... UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio ... +

v O a 1x 2 ENG 06:33 16-03-2020 ... o X HL49 X fic HE HE HG HH НІ Н HK HL HM HN - 1/9 = 0.11111 EXPECTED RETURN PROB VARIANCE B*C =D CALCULATION OF STANDARD DEVIATION PRICE ($) (P1-P0)/PO*100 (P1) RETURN (%) Α 35.7 -28.60% 44.2 -11.60% 52.7 5.40% -16.00% PROB*(D-E(D))^2 1.18083% 0.11111 -3.17775% 0.11111 0.27040% -1.28888% 0.59999% 0.00218% 42 0.11111 0.11111 0.11111 0.44444% 52 4.00% 62 24.00% -3.40% 19.60% 42.60% 48.3 -1.77776% 0.44444% 2.66664% -0.37777% 2.17776% 0.11111 0.11111 0.11111 0.11111 0.00000% 0.44444% 0.06084% 0.27040% 1.65550% 59.8 71.3 4.73329% E(D) = 3.99996% 4.32902% STANDARD DEVIATION = SQRT(VARIANCE) STANDARD DEVIATION = SQRT(HL44))= ANSWER 20.81% ... UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio ... +