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Stock Investments: Adjusting Returns for Exchange Rates

A French investor buys \$100 shares of Goodyear Corp. for \$3,000(\$30 per share). Over the course of a year, the stock goes up 6 points.

a. If there is a 10 percent gain in the value of the dollar versus the euro, what will be the total percentage return to the French investor? First determine the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by \$3,000 to get a percentage value, and then subtract 100 percent to get the percentage return.

b. Now assume the stock increases by 8 points, but that the dollar decreases by 14 percent versus the euro. What will be the total percentage return to the French Investor? Use .86 in the place of 1.10 in this case.

Solution Preview

a. The stock goes up by \$6 and the price becomes \$36. The total dollar value is ...

Solution Summary

This solution is comprised of a step by step response which outlines how to calculate the rate of return after accounting for exchange rates. All calculations are included and the final answers are given in percentages.

\$2.19