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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

01

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.

02

Calculating total ending value of the Brazilian investment in Brazilian reals

Initialvalue×(1+earnings)

=195,000×(1+0.16)=195,000×1.16=226,200  Brazilian  reals

03

 Translating Brazilian reals to U.S. dollars

Brazilian reals×0.46=U.S.dollars

=226,200×0.46=104,052  U.S. dollar  equvalent

04

Computing the return on the $100,000

104,052100,000×100−100=104.052

Subtract 100 percent to get the percentage return: -

=104.052−100=4.052%

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