Question

Dhon is an exploration and production company that trades on the Toronto stock exchange. Assume that when purchased by an international investor the stock's price and the exchange rate were CAD5 and CAD1.0/USD0.72 respectively. At selling time, one year after the purchase date, they were CAD6 and CAD1.0/USD1.0. Calculate the investor's annual percentage rate of return in terms of the U.S. dollars. A. 38.89 percent B. −13.60 percent C. 66.67 percent D. 28.00 percent

Answer 1

Ans :

Exchange Rate at the time of purchase = 1CAD / 0.72 USD
Exchange Rate at the time of sales = 1CAD / 1 USD

Step 1 : Purchase in USD = Stock Purchase Price * Exchange Rate
= 5 * 0.72
= $3.6

Step 2 : Sales in USD = Stock's sales price * Exchange rate
= 6 * 1
= $6

Step 3 : Total Return and Rate of Return

Total Return in USD = Sales - Purchases
= $6 - $3.6
= $2.4

Rate of Return = ( Total Return / Investment ) * 100
= ($2.4 / $3.6 ) * 100
= 66.67%

Ans : Investor's Rate of Return = 66.67%. Option C is correct.