A Peruvian investor buys 150 shares of a U.S. stock for \(7,500 (\)50 per share). Over a year, the stock goes up by \(4 per share.

1. If there is a 10 percent gain in the value of the dollar versus the Peruvian nuevo sol, what will be the total percentage return to the Peruvian investor? First, determine the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by \)7,500 and get a percentage value, and then subtract 100 percent to get the percentage return.
2. Instead assume that the stock increases by $7, but that the dollar decreases by 10 percent versus the nuevo sol. What will be the total percentage return to the Peruvian investor? Use 0.90 in place of 1.10 in this case.

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

Answer (a)

a. Determining the new dollar value of the investment

$\mathbf{150}\mathbf{\text{shares}}\mathbf{\times }\mathbf{\text{newvalueofpershare}}$

$\begin{array}{l}=150\times (\mathrm{\$}50+\mathrm{\$}4)\\ =150\times \mathrm{\$}54\\ =\mathrm{\$}8,100\end{array}$

b. Multiplying the new dollar value by 1.10

$\begin{array}{l}=\mathrm{\$}8,100\times 1.10\\ =\mathrm{\$}8,910\end{array}$

c. Calculating the total percentage return

$\begin{array}{l}=\frac{\mathrm{\$}8,910}{\mathrm{\$}7,500}\times 100\\ =118.8\mathrm{\%}\end{array}$

Subtract 100 percent to get the percentage return

$\begin{array}{l}=118.8\mathrm{\%}-100\mathrm{\%}\\ =18.8\mathrm{\%}\end{array}$

03

Answer (b) 

The total percentage return to the Peruvian investor is 2.6%

a. Determining the new dollar value of the investment

$\mathbf{150}\mathbf{\text{shares}}\mathbf{\times }\mathbf{\text{newvalueofpershare}}$

$\begin{array}{l}=150\times (\mathrm{\$}50+\mathrm{\$}7)\\ =150\times \mathrm{\$}57\\ =\mathrm{\$}8,550\end{array}$

b. Multiplying the new dollar value by 0.9

$\begin{array}{l}=\mathrm{\$}8,550\times 0.9\\ =\mathrm{\$}7,695\end{array}$

c. Calculating the total percentage return

$\begin{array}{l}=\frac{\mathrm{\$}7,695}{\mathrm{\$}7,500}\times 100\\ =102.6\mathrm{\%}\end{array}$

Subtracting 100% to get the percentage return

$\begin{array}{l}=102.6-100\\ =2.6\mathrm{\%}\end{array}$

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