Question

You decide to speculate in the wine market, so you buy 100 bottles of Bordeaux wine from France at 120 EUR apiece. A year has passed, and you observe that the price of your wine has risen to 155 EUR per bottle (turns out it was a good year). At the same time, the euro has depreciated against the dollar by 7.3%. What was the net rate of return on this investment, assuming you are in the US and measure your return in terms of USD?

Enter answer in percents, accurate to two decimal places.

Answer 1

Number of bottle purchased = 100

Purchase price = 120 EUR

Total Investment in EURO = 100 × 120

= 12,000

value of investment in Euro is 12,000 Euro.

After one year value of Sale price = 155 Euro

Value of investment after one year = 100 × 155

= 15,500 Euro.

Value of investment after one year will be 15,500.

in one year Euro depreciated by 7.30% again dollar.

So,Net value of investment after one year = 15,500 / (1 + 7.30%)

= 14,445.48

So,Net value of investment after one year is 14,445.48.

Rate of return = (14,445.48 / 12,000)- 1

= 1.2038 - 1

= 20.38%

Rate of return is 20.38%.