Question

George Robbins considers himself an aggressive investor.​ He's thinking about investing in some foreign securities and...

George Robbins considers himself an aggressive investor.​ He's thinking about investing in some foreign securities and is looking at stocks in​ (1) Bayer​ AG, the big German chemical and​ health-care firm, and​ (2) Swisscom​ AG, the Swiss telecommunications company.

                                               Bayer​ AG, which trades on the Frankfurt​ Exchange, is currently priced at

51.99

euros

​(€​)

per share. It pays annual dividends of

1.41

euro per share. Robbins expects the stock to climb to

61.04

euro per share over the next 12 months. The current exchange rate is

0.9008

€​/U.S.

​$, but​ that's expected to rise to

1.0052

€​/U.S.

​$. The other​ company, Swisscom, trades on the Zurich Exchange and is currently priced at

71.89

Swiss francs​ (Sf) per share. The stock pays annual dividends of

1.57

Sf per share. Its share price is expected to go up to

75.35

Sf within a year. At current exchange​ rates, 1 Sf is worth

$0.7397

​U.S., but​ that's expected to go to

$0.8657

by the end of the​ 1-year holding period.

a. Ignoring the currency

effect​,

which of the two stocks promises the higher total return​ (in its local​ currency)? Based on this​ information, which of the two stocks looks like the better​ investment?

b. Which of the two stocks has the better total return in U.S.

dollars​?

Did currency exchange rates affect their returns in any​ way? Do you still want to stick with the same stock you selected in part

a​?

Explain.

Homework Answers

Answer #1

Answers:

a.)

Bayer= (61.04 + 1.41)/ 51.99 - 1 = 0.20119 = 20.12%

Swisscom= (75.35 + 1.57)/ 71.89 - 1 = 0.06996 = 6.99%

Bayer looks like better investment

b.)
Bayer= ((61.04 + 1.41) / 1.0052)/ (51.99 /0.9008) - 1 = 0.0764 = 7.64%

Swisscom= (75.35 + 1.57) * 0.8657/ (71.89 *0.7397) - 1 = 0.2522 = 25.22%

Swisscom looks like better investment. Yes, the currency exchange rates did affect their returns. No, I would want the exact opposite of the stock I selected in part a.

[Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.]

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Letticia Garcia, an aggressive bond investor, is currently thinking about investing in a foreign (non-dollar-denominated) government...
Letticia Garcia, an aggressive bond investor, is currently thinking about investing in a foreign (non-dollar-denominated) government bond. In particular, she's looking at a Swiss government bond that matures in 15 years and carries a coupon of 10.88%. The bond has a par value of 9,000 Swiss francs (CHF) and is currently trading at 105.22 (i.e., at 105.22% of par) Letticia plans to hold the bond for a period of 1 year, at which time she thinks it will be trading...
1.Chapter 3, Question 6. Bid/Ask Spread Utah Bank’s bid price for Canadian dollars is $.7938 and...
1.Chapter 3, Question 6. Bid/Ask Spread Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.8100. What is the bid/ask percentage spread? 2.Chapter 3, Question 10. Indirect Exchange Rate If the direct exchange rate of the euro is $1.25, what is the euro’s indirect exchange rate? That is, what is the value of a dollar in euros? 3.Chapter 3, Question 11. Cross Exchange Rate Assume Poland’s currency (the zloty) is worth $.17 and the Japanese...
1. Stock XYZ is currently trading at $35.48. You want to enter the market at $33....
1. Stock XYZ is currently trading at $35.48. You want to enter the market at $33. All of the following orders can be used EXCEPT (1 point): Stop buy Stop sell Market Limit sell 2. Oak Street Health went public on August 6, 2020 with an IPO price of $21 per share. Go to Yahoo Finance, obtain the closing price on its first trading day and calculate the IPO underpricing (1 point): 149.5% 190.5% 90.5% 49.5% 3. You want to...
Question 1 Your friend from Netherlands is planning to visit you in the United States. You...
Question 1 Your friend from Netherlands is planning to visit you in the United States. You estimate the cost of her trip at $6,781. What is the cost to her in euros if 1 Euro = $1.2001? Question 2 You are planning to visit Japan in December. You estimate the cost of your trip to be $820. How many yen do you need to buy if the exchange rate is 1$ = 123.1 yen? Question 3 ABC Company has projected...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...