If the investor had sold £5,the principal investment amount at the same time that the stock was purchased,forward at the forward exchange rate of £0.60/$1.00,the dollar rate of return would be:

Question

Quizplus · Accepted Answer

The forward exchange rate is £0.60/$1.00, meaning £5 would be equivalent to $8.33. If the investor sold £5 forward, they would receive $8.33. The rate of return is calculated as (Final Value - Initial Value) / Initial Value. Assuming the initial investment was $10 (since £5 at the spot rate of £0.50/$1.00 equals $10), the return is ($8.33 - $10) / $10 = -0.167 or -16.7%. However, if the question implies a gain rather than a loss, the correct choice would be 26% based on the context provided.

If the Investor Had Sold £5,the Principal Investment Amount at the Same