Question

1. Calculate the rates of return on the following assets:
2. 1. A sports car whose price rises from $150,000 to $200,000 in one year.
   2. A rare antique vase whose price rises from $5000 to $7500 between 2018 & 2019.
   3. A £ 20,000 deposit in a London bank in a year when the interest rate on pounds is 5% and the $/£ exchange rate moves from $1.25 per pound to $1.10 per pound.

*Please answer in DETAIL and show all calculations*

Answer 1

a) Rate of return = [(New price-old price)/old price]*100

=[(200,000-150,000)/150000]*100

=33.33%

b)Rate of return = [(New price-old price)/old price]*100

=[(7500-5000)/5000]*100

=50%

c)Amount in $ terms =£20000*1.25/£=$25000

Interest on deposit=Principal * rate *time

=£20,000*0.05*1

=£1000

Total amount =Principal+interest

=£20000+£1000

=£21000

excahnge rate today=$1.1/£

total amount in $terms =£21000*1.1/£

=$23100

Rate of return =[($23100-$25000)/$25000]*100

= - 7.6%

Due to exchange rate fluctuation the net return is negative.