Question

A U.S. investor purchased 100 shares of a foreign country's technology stock at the current market price in the foreign country's currency. Over the next year, the foreign technology stock appreciated 28% in the foreign currency, but the foreign country's rate of inflation was higher than the U.S.'s rate of inflation, causing the dollar to appreciate by 7.50% against the foreign currency. What is the U.S. investor's rate of return in dollars over this year? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

Answer 1

U.S. investor's rate of return = ((1+ rate of increase in share) / (1 + rate of increase in price of home currency)) - 1

= ((1 + 0.28) / (1 + 0.0750)) - 1

= (1.28 / 1.0750) - 1

= 1.1907 - 1

= 19.07%