An investment in Mexico produces a return of 80%. However, the Mexican peso has just declined by 45%, relative to the dollar. The previous value of the peso was $.0066. The adjusted return on the investment is a(n):

Question

Quizplus · Accepted Answer

To calculate the adjusted return on the investment in dollars, we need to first convert the previous peso value $.0066 to the current value.

Current peso value = $.0066 - ($.0066 * 0.45) = $.00363

Now, let's calculate the adjusted return:

Adjusted return = (1 + Return in pesos) * (1 - Change in peso value) - 1

Adjusted return = (1 + 0.80) * (1 - 0.45) - 1

Adjusted return = 0.44 or 44%

However, we need to convert this back to dollars by multiplying it with the current peso value:

Adjusted return in dollars = 0.44 * $.00363 = $0.00159

So, the adjusted return on the investment is a 1.0% loss.

An Investment in Mexico Produces a Return of 80