Assume that you are a U.S. investor who is considering investments in the German (Stocks A and
B) and British (Stocks C and
D) stock markets. The world market risk premium is 4.5%. The currency risk premium on the euro is 1%, and the currency risk premium on the pound is -1%. In the United States, the interest rate on one-year risk-free bonds is 4%. In addition, you are provided with the following information:
$$\begin{array} { c c c c c }
\text { Stack } & \mathbf { A } & \mathbf { B } & \mathbf { C } & \mathbf { D } \
\hline & & & \text { United } & \text { United } \
\text { Country } & \text { Germany } & \text { Germany } & \text { Kingdam } & \text { Kingdam } \
\beta _ { w }& 1.5 & 0.90 & 1 & 1.5 \
\gamma _ { € } &1 & 0.80 & - 0.25 & 1.0 \
\gamma _ { €} &-0.25&0.75&1.0&-0.5 \
\hline
\end{array}$$ Calculate the expected return for each of the stocks. The U.S. dollar is the base currency.

Question

Assume that you are a U.S. investor who is considering investments in the German (Stocks A and
B) and British (Stocks C and
D) stock markets. The world market risk premium is 4.5%. The currency risk premium on the euro is 1%, and the currency risk premium on the pound is -1%. In the United States, the interest rate on one-year risk-free bonds is 4%. In addition, you are provided with the following information:
 $$\begin{array} { c c c c c } 
\text { Stack } & \mathbf { A } & \mathbf { B } & \mathbf { C } & \mathbf { D } \
\hline & & & \text { United } & \text { United } \
 \text { Country } & \text { Germany } & \text { Germany } & \text { Kingdam } & \text { Kingdam } \
\beta _ { w }& 1.5 & 0.90 & 1 & 1.5   \
\gamma _ { € } &1 & 0.80 & - 0.25 & 1.0 \
\gamma _ { €} &-0.25&0.75&1.0&-0.5 \
\hline
\end{array}$$ Calculate the expected return for each of the stocks. The U.S. dollar is the base currency.

Quizplus · Accepted Answer

The Answer of Assume that you are a U.S. investor who is considering investments in the German (Stocks A and
B) and British (Stocks C and
D) stock markets. The world market risk premium is 4.5%. The currency risk premium on the euro is 1%, and the currency risk premium on the pound is -1%. In the United States, the interest rate on one-year risk-free bonds is 4%. In addition, you are provided with the following information:
 $$\begin{array} { c c c c c } 
\text { Stack } & \mathbf { A } & \mathbf { B } & \mathbf { C } & \mathbf { D } \
\hline & & & \text { United } & \text { United } \
 \text { Country } & \text { Germany } & \text { Germany } & \text { Kingdam } & \text { Kingdam } \
\beta _ { w }& 1.5 & 0.90 & 1 & 1.5   \
\gamma _ { € } &1 & 0.80 & - 0.25 & 1.0 \
\gamma _ { €} &-0.25&0.75&1.0&-0.5 \
\hline
\end{array}$$ Calculate the expected return for each of the stocks. The U.S. dollar is the base currency.

Assume That You Are a U Calculate the Expected Return for Each of the Stocks