Question

Suppose you are a U.S. investor who is planning to invest $865,000 in Mexico. Your Mexican investment gains 10.8 percent. If the exchange rate moves from 13.0 pesos per dollar to 13.3 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Initial investment in pesso = $865,000 x 13 = 11,245,000 pessos

Interest earned = 11,245,000 pessos x 10.8% = 1,214,460 pessos

Total amount to be converted = $11,245,000 + $1,214,460

= 12,459,460 pessos

Converting it to dollars,

= 12,459,460/13.3 = $936,801.50375939

Total return in dollars = $936,801.50375939 - $865,000

= $71,801.50375939

Total return in % = $71,801.50375939/$865,000 x 100 = 8.30%

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