Question

An investor in the United States bought a one-year Brazilian security valued at 300,000 Brazilian reals (R$). The U.S. dollar equivalent was $250,000. The Brazilian security earned 12 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the time period ($.83 to $.78).

After transferring the funds back to the United States, what was the investor’s return on her $250,000? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.

Answer 1

Cost of investment in Brazilian reals (R$) =					300000
Dollar equivalent amount (P0) ($) =					$ 250,000.00
Brazilian security earnings 12% = (300000* 12%) =					36000
Current exchange rate 1 (R$) = % 0.78
So, earnings in dollars (36000 * 0.78) =					$      28,080.00
value of investment (P1) = 300000 * 0.78					$ 234,000.00
Investor rate of return = E1 + (P1 - P0)   / P0
		( 28080 + (234000 - 250000) /   250000
		4.83%
So, investor's rate of return is 4.83%