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This post addresses the Swedisn investor case below.

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 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

Answer ...

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.

$2.19