Question

An investor in the United States bought a one-year Brazilian security valued at 380,000 Brazilian reals (R$). The U.S. dollar equivalent was $330,000. The Brazilian security earned 11 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the time period ($.87 to $.82).

After transferring the funds back to the United States, what was the investor’s return on her $330,000? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer 1

If we consider the Brazilian security, we will find the value earned at 11% in one year.

Hence 380,000 * (1 + r/100)^t

= 380,000 * (1 + 11/100)¹

= 380,000 * 1.11

= R$ 421,800

To convert the R$ back to US Dollars we multiply it by the revised conversion rate i.e. 0.82

US Dollars = Amount in R$ * conversion rate

USD = 421,800 * 0.82

USD = 345,876

To consider the return on investment, the formula is : Value after one year - Initial Investment

Return on Investment = $345,876 - 330,000

Return on investment = $15,876

Return on Investment in % = (Return on investment / Initial value) * 100

Return on Investment in % = (15,876 / 330,000) * 100

Return on Investment in % = 4.81%