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Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50...

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock. One year after investment, the stock pays a £1 dividend, and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound, although he sold £8,800 forward at the forward rate of €1.28 per pound.

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Answer #1
Number of shares of stock bought = (10000/1.25)/50 = 160 shares
Proceeds after 1 Year in pounds:
Dividend = 160*1 = £           160
Sale value = 160*54 = £       8,640
Total amount realized after 1 year £       8,800
Amount realized in Euros at the forward rate = 8800*1.28 = €     11,264
Euro based return =11264/8800 -1 = 28.00%
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