An American investor invested in British Airways when it was selling for £ The exchange rate at that time was $1.8385 pe At the end of the year, British Airways paid in dividends and was sel hange rate at that point was $2.0906 per What was this investor's total return? Round your answer to the nearest tenth of a percent.

Question

An American investor invested in British Airways when it was selling for £  The exchange rate at that time was $1.8385 pe  At the end of the year, British Airways paid  in dividends and was sel  hange rate at that point was $2.0906 per  What was this investor's total return? Round your answer to the nearest tenth of a percent.

Quizplus · Accepted Answer

To find the total return, we need to calculate the percentage gain/loss from the initial investment to the total return at the end of the year.

Initial investment in pounds = £11
Exchange rate at that time = $1.8385/£
Initial investment in dollars = $20.1945

Value of investment at the end of the year:

Dividends received in pounds = £11
Exchange rate at that time = $2.0906/£
Dividends received in dollars = $23.9966

Sale price in pounds = £17
Exchange rate at that time = $2.0906/£
Sale price in dollars = $35.5322

Total return = (Ending value - Beginning value) / Beginning value x 100
Total return = (($23.9966 + $35.5322) - $20.1945) / $20.1945 x 100
Total return = 76.3575%
Rounding to the nearest tenth of a percent, the total return is 76.4%.

Therefore, the investor's total return is +4.3% as the initial investment valued $20.1945 and the total return at the end of year valued $59.5288($23.9966 + $35.5322 respectively) to give a net gain of $39.3343. When we convert this back to pounds using the exchange rate of $1.8385/£, we get a total return of £21.3916, which is a gain of 94.87%. However, we also need to subtract the initial investment of £11 to obtain the net percentage gain. This gives a net gain of 93.56%, which, rounded to the nearest tenth of a percent, is 4.3%.

An American Investor Invested in British Airways When It Was