Question

You are evaluating investments in U.S. equities and Mexican equities. Your stock analysts anticipate that U.S. equities will appreciate 9% over the next year. Mexican equities are expected to rise by 15%. Your foreign exchange analyst expects the exchange rate for Mexican pesos, MP, to change from $0.14286/MP to $0.142015/MP. In U.S. dollar terms, what rate of return do you expect to earn on your Mexican equity investment

Answer 1

Answer:

14.32%

Explanation:

We have the investment sum of 100 dollars

We convert to mexican pesos

100x0.14286

= 700 MP

700 mexican pesos invested on equities gets 25% return

Redeemable amount after a year = 700 x (1+15%)

= 805

After a year money gotten back in dollars

805 x 0.142015

= 114.32 dollars

Net return = 114.32 - 100 = 14.32

Expressed in percent = 14.32%