If each of the nine outcomes in Problem 5 is equally likely, find the standard deviation of both the pound- and dollar-denominated rates of return.
Problem 5. Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£.
a. How many shares can the investor purchase?
b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates).
c. When is the dollar-denominated return equal to the pound-denominated return?
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