Question

You are a U.S. investor who purchased British securities for 2,000 pounds, one year ago when the British pound cost $1.50. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60.

Answer 1

Answer:

Total return based on US dollars was $840.

Explanation:

a) Data and Calculations:

Initial investment in British securities = 2,000 pounds

Initial exchange rate = $1.50 = 1 pound

Initial worth of investment in US dollars = $3,000 (2,000 * $1.50)

Current value of British securities = 2,400 pounds

Current exchange rate = $1.60 = 1 pound

Current worth of investment in US dollars = $3,840 (2,400 * $1.60)

Therefore, the total return, based on US dollars, is Current worth of investment minus Initial worth of investment

= $3,840 - $3,000

= $840