Annika bought euro denominated bonds when the exchange rate was .909 euro to the dollar. She paid $11,881 for the bonds. At the end of the year, the bonds were worth 10,600 euro; she received 400 euro in interest and the exchange rate was .921 euro to the dollar. What was her holding period return in U.S. dollars?
A) -0.74%
B) 1.85%
C) 0.53%
D) 5.30%

Question

Quizplus · Accepted Answer

The holding period return (HPR) in U.S. dollars can be calculated by first converting all euro amounts to dollars using the exchange rates at the respective times, then calculating the total return in dollars, and finally dividing by the initial investment in dollars.1. Initial investment in dollars: $11,881 (given).2. Value of bonds at the end of the year in euros: 10,600 euros.3. Interest received in euros: 400 euros.4. Total value in euros at the end of the year: 10,600 + 400 = 11,000 euros.5. Exchange rate at the end of the year: .921 euro to the dollar.6. Total value in dollars at the end of the year: 11,000 euros * (1/.921) = $11,941.37.7. Total return in dollars: $11,941.37 - $11,881 = $60.37.8. Holding period return (HPR) in dollars: ($60.37 / $11,881) * 100 = 0.53%.Therefore, the correct answer is 0.53%, which corresponds to choice C.

Annika Bought Euro Denominated Bonds When the Exchange Rate Was