A Canadian-based investor purchases a Standard & Poor's 500 index (SPY)on the American Stock Exchange,in U.S.dollars.Over the course of the year the U.S.dollar appreciates 8% against the Canadian dollar,and the S&P Index rises 22%.The total return to the Canadian investor in Canadian dollar terms is approximately ________.

Question

Quizplus · Accepted Answer

To calculate the total return in Canadian dollar terms, we need to account for both the appreciation of the U.S. dollar and the change in the S&P Index.

First, we need to convert the return from USD to CAD, using the exchange rate at the end of the year. If the U.S. dollar has appreciated by 8%, then it would take C$1.08 to buy one USD at the end of the year.

Next, we need to calculate the return from the S&P Index. If it has risen by 22%, then the investment has grown by (1 + 0.22) = 1.22 times.

To calculate the total return in CAD, we multiply the changes in exchange rate and index:

Total return = (1 + 0.08) x (1 + 0.22) - 1 = 1.30 - 1 = 0.30 or 30%

Therefore, the best answer is D.

A Canadian-Based Investor Purchases a Standard & Poor's 500 Index