Question

A U. S. investor purchased Canadian securities for Canadian $2,000 one year ago when the Canadian...

A U. S. investor purchased Canadian securities for Canadian $2,000 one year ago when the Canadian dollar cost US $0.75. Currently the market value of the securities is Canadian $2,400 and dividend yield is 3% for the investment period. What is the rate of return if Canadian $ is worth US $0.73 now?

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Answer #1

Answer:

Investment:

The US Inventort purchased Canadian securities for Canadian $2,000 one year ago when the Canadian dollar cost US $0.75.

Investment in US $ one year ago = 2000 * 0.75 = US $1500

Return:

Currently the market value of the securities is Canadian $2,400 and dividend yield is 3% for the investment period.

Dividend amount in Canadian $ = 2400 * 3% = CAD 72

Current market value and dividend amount in US $ = (2400 + 72)* 0.73 = US $1804.56

Rate of return for US investor = (1804.56 - 1500) / 1500 = 20.30%

Rate of return for US investor = 20.30%

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