Emerald Energy is an oil exploration and production company that trades on the London stock market. Over the past year, the stock has gone from £50 per share to £55, but over the same period, the dollar has depreciated ten percent. Calculate the investor's annual percentage rate of return in terms of the U.S. dollars.

Question

Quizplus · Accepted Answer

To calculate the annual percentage rate of return in terms of U.S. dollars, we need to adjust for the depreciation of the dollar. If the stock has gone from £50 to £55, this represents a 10% increase in value. However, because the dollar has depreciated by 10%, the value of the pound in dollar terms has also increased by 10%. Therefore, the actual return in U.S. dollars is zero, since the gain in pound terms is offset by the depreciation of the dollar. In fact, the return is slightly negative because of any transaction costs or fees that may have been incurred in converting currency, so the best answer is B, which indicates a very small negative return.

Emerald Energy Is an Oil Exploration and Production Company That