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Exchange rate and return to investor

An American investor buys 100 shares of London Enterprises at a price of £50 when the exchange rate is $1.60/£. A year later the shares are selling at £52. No dividends have been paid.

a. What is the rate of return to an American investor if the exchange rate is still $1.60/£?
b. What if the exchange rate is $1.70/£?
c. What if the exchange rate is $1.50/£?

Solution Preview

a) At the same exchange rate, the rate of return will be calculated simply by dividing the profit with the principal investment, ie, 2 pounds/50 ...

Solution Summary

What is the rate of return to an American investor

$2.19