Purchase Solution

# This post addresses the Swedisn investor case below.

Not what you're looking for?

A Swedish investor purchased 100 shares of Microsoft on January 1, at \$41 per share. The Swedish kroner to the dollar exchange rate at the time of purchase was \$:Kr = 9.4173 - 9.4188. One year later, the investor received a dividend of \$2 per share, and the investor then sold the shares at a price of \$51 per share. The exchange rate at the time of the sale was \$:Kr = 9.8710 - 9.8750. The dividend withholding tax in the U.S. was 15 percent and there is a tax treaty between the U.S. and Sweden to allow the withholding tax to be considered a tax credit in Sweden. Suppose the Swedish investor is taxed at 50 percent on income and 15 percent on capital gains. Ignore any commissions on purchase and sale.

a. Calculate the gross rate of return on the investment in dollars.
b. Calculate the gross rate of return on the investment in kroners.
c. Calculate the rate of return on the investment, in kroners, net of taxes.

##### Solution Summary

The solution provides all calculations to each part of the following case:

A Swedish investor purchased 100 shares of Microsoft on January 1, at \$41 per share. The Swedish kroner to the dollar exchange rate at the time of purchase was \$:Kr = 9.4173 - 9.4188. One year later, the investor received a dividend of \$2 per share, and the investor then sold the shares at a price of \$51 per share. The exchange rate at the time of the sale was \$:Kr = 9.8710 - 9.8750. The dividend withholding tax in the U.S. was 15 percent and there is a tax treaty between the U.S. and Sweden to allow the withholding tax to be considered a tax credit in Sweden. Suppose the Swedish investor is taxed at 50 percent on income and 15 percent on capital gains. Ignore any commissions on purchase and sale.

##### Solution Preview

a. Calculate the gross rate of return on the investment in dollars.

This can be calculated as:

41 * 100 = \$4,100

2 * 100 = 200

51 * 100 = 5,100

(200 + 5,100 - 4,100) = 1,200 / 4,100 = .02927

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

##### Basics of corporate finance

These questions will test you on your knowledge of finance.

##### Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

##### Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

##### Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.