Question

International investment returns Personal Finance Problem Joe​ Martinez, a U.S. citizen living in​ Brownsville, Texas, invested in the common stock of​ Telmex, a Mexican corporation. He purchased 1 comma 000 shares at 23.00 pesos per share. Twelve months​ later, he sold them at 27.00 pesos per share. He received no dividends during that time. a. What was​ Joe's investment return​ (in percentage​ terms) for the​ year, on the basis of the peso value of the​ shares? b. The exchange rate for pesos was 12.88 pesos per​ US$1.00 at the time of the purchase. At the time of the​ sale, the exchange rate was 13.44 pesos per​ US$1.00. Translate the purchase and sale prices into​ US$. c. Calculate​ Joe's investment return on the basis of the​ US$ value of the shares. d. Explain why the two returns are different. Which one is more important to​ Joe? ​ Why?

Answer 1

Answer:

Following are the answer to the given point.

Explanation:

In point A:

Calculating Percentage Return:

$= \frac{(27.00 - 23.00)}{23.00} \times 100 \\ \\= \frac{ 4}{23.00} \times 100 \\\\= 17.39 %$

In point B:

calculating the Purchase  value:

$= 23.00 \ Pesos \times ( \frac{\ 1}{12.88 \ pesos}) \\\\ = \ 1.7857 \ per \ share \\\\\to \text{for 1000 shares purchased for: } \\\\= 1.7857 \times 100 \\\\ = 1785.7$

calculating the sale value:

$= 27.00 \ pesos \times ( \frac{ \ 1}{ 13.44 \ Pesos}) \\\\ = 2.0089 \\\\\to \text {1000 shares sold for:} \\\\= 2.0089 \times 1000 \\\\ = 2008.9$

In point C:

calculating the Investmet Return:

$\to \frac{( \ 2008.9 - \ 1785.7)}{\ 1785.7} \times 100$

$=\frac{\ 223.2}{\ 1785.7} \times 100\\\\= 0.12499 \times 100\\\\= 12.49\ \%$

In point  D:  

Due to varying currency rates, the two results are unique. That first return is more important since Joe lives in the United States, so, his real return or how much of his investment will be paid are measured.