Question

In May 1995 when the exchange rate was 80 yen per dollar, Japan Life Insurance Company invested ¥800,000,000 (i.e., $10,000,000) in pure-discount U.S. bonds. The investment was liquidated one year later when the exchange rate was 120 yen per dollar. If the rate of return earned on this investment was 50 percent in terms of yen, calculate the dollar amount that the bonds were sold at.
$10,000,000  
$10,618,000
$14,600,000
none of the options

Answer 1

OPTION A IS CORRECT

Initial Investment in Yen = 800,000,000

Let dollar amount that the bonds were sold at = "x"

Now we will convert this in Yen at current rate of (Yen 120 per dollar)

Yen amount that the bonds were sold at = X * 120

Rate of return in yen = Sale proceed from bond in Yen - Initial Investment) / Initial Investment

50% = (120X - 800,000,000) / 800,000,000

120X - 800,000,000 = 400,000,000

X = 1,200,000,000 / 120

X = $ 10,000,000

dollar amount that the bonds were sold at = $ 10,000,000