The return and variance of return to a U.S. dollar investor from investing in individual foreign security i are given by:

Question

Quizplus · Accepted Answer

This is the correct equation for return and variance of return for a U.S. dollar investor investing in an individual foreign security. The return is the product of the domestic return (R_i) and the exchange rate return (e_i), added to 1 and then subtracted by 1 to get the proper return percentage. The variance of the return is the sum of the variances of the domestic and exchange rate returns, as well as the covariance between the two. Therefore, choice C is the correct option.

The Return and Variance of Return to a U