Chapter 5: Q5BP (page 681)

An investor in the United States bought one-year Brazilian security valued at 195,000 Brazilian reals. The U.S. dollar equivalent was 100,000. The Brazilian security earned 16 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the period ($0.51 to $0.46). after transferring the funds back to the United States, what was the investor’s return on her $100,000? Determine the total ending value of the Brazilian investment in Brazilian reals and then translate this Brazilian value to U.S. dollars. Then compute the return on the $100,000.

Short Answer

Expert verified

The total ending value of the Brazilian investment is 226,200 Brazilian reals. The value in U.S. dollars is 104,052. The return on the $100,000 is 4.052%.

Step by step solution

Investment

Investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for profit.

Calculating total ending value of the Brazilian investment in Brazilian reals

$Initial value \times (1 + earnings)$

$\begin{array}{l} = 195, 000 \times (1 + 0.16) \\ = 195, 000 \times 1.16 \\ = 226, 200 Brazilian reals \end{array}$

Translating Brazilian reals to U.S. dollars

$Brazilian reals \times 0 .46 = U . S . dollars$

$\begin{array}{l} = 226, 200 \times 0.46 \\ = 104, 052 U . S . dollar equvalent \end{array}$

Computing the return on the $100,000

$\begin{array}{l} [\frac{104, 052}{100, 000} \times 100] - 100 \\ = 104.052 \end{array}$

Subtract 100 percent to get the percentage return: -

$\begin{array}{l} = 104.052 - 100 \\ = 4.052 % \end{array}$

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Short Answer

Step by step solution

Investment

Calculating total ending value of the Brazilian investment in Brazilian reals

Translating Brazilian reals to U.S. dollars

Computing the return on the $100,000

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