Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $20,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £33, £38, and £43 after 1 year. Also, consider three possible exchange rates at $1.6/£, $2/£, and $2.4/£ after 1 year. Calculate the standard deviation of both the pound- and dollar-denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

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Ovoca 1x 2 ENG | 21:17 13-03-2020 ... X HF97 X fc HD HEHE HG HH НІ НJ HK HL HM - 96 POUND DENOMINATED STANDARD DEVIATION PURCHASE PRICE (PO)= 40.00 101 102 103 EXPECTED RETURN PRICE (P1) Α (P1-PO)/P0*100 RETURN 104 105 106 PROB VARIANCE PROB*(D- E(D))^2 B B*C = D (%) -17.50% -5.00% 7.50% 33.00 38.00 43.00 1/3 = 0.33333 0.33333 0.33333 41 41 -5.83% -1.67% 2.50% 0.521% 0.000% 0.521% 1.042% 109 0.33333 E(D) -5.00% variance = STANDARD DEVIATION = SQRT(VARIANCE) STANDARD DEVIATION = SQRT(HL110))= ANSWER 10.21% 110 111 112 113 114 115 116 117 118 DOLLAR DONIMATED STANDARD DEVIATION CONVERTING PRICES IN $ TERMS PO = 40.00 (33 X 1.60) 119 120 ... DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLO Q DIR right clean YIELD bond portfolio WACC RESI DIV POLICY NAME ...

Ovoca 1x 2 ENG - = 21:18 13-03-2020 ... o X HF131 X fc HD HE HE HG HH HI HK HL HMA 114 115 116 117 118 119 120 121 (33 X 1.60) DOLLAR DENOMINATED STANDARD DEVIATION CONVERTING PRICES IN $ TERMS PO = 40.00 PO (IN DOLLARS ) = 40 X 2 = $80 EXCHANGE RATE PRICE (P1) 33.00 38.00 43.00 1.60 $ - 122 123 2.00 $ 2.40 124 125 52.8 60.8 68.8 66 76 86 79.2 91.2 103.2 (43 X 2.40) 126 127 128 129 130 PO = $80 CALCULATION OF STANDARD DEVIATION 131 132 133 134 135 136 137 7 Anna onnoon/ anaan ... DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio WACC RESI DIV POLICY NAME ... : 1

Ovoca 1x 2 ENG - 21:19 13-03-202014 ... X HE127 X ✓ fx HD HEHE - HE HG HG | HH HH HI HI HJ HK HL HM A 127 128 129 CA EXPECTED RETURN 1/9 = 0.11111 PROB B 130 131 132 133 134 135 136 137 PO = $80 CALCULATION OF STANDARD DEVIATION PRICE ($) (P1-PO)/PO*100 (P1) RETURN (%) Α 52.8 -34.0000% 60.8 -24.0000% 68.8 -14.0000% 66 -17.5000% -5.0000% 7.5000% 79.2 -1.0000% 91.2 14.0000% 103.2 29.0000% 0.111111 0.111111 0.111111 0.111111 0.111111 0.111111 0.111111 0.111111 0.111111 B*C=D -3.77778% -2.66667% -1.55556% -1.94444% -0.55556% 0.83333% -0.11111% 1.55556% 3.22222% -5.00000% 76 86 VARIANCE PROB*(D-E(D))^2 0.9344% 0.4011% 0.0900% 0.1736% 0.0000% 0.1736% 0.0178% 0.4011% 1.2844% variance = 3.4761% 138 139 140 E(D) = 141 142 143 144 145 STANDARD DEVIATION = SQRT(VARIANCE) STANDARD DEVIATION = SQRT(HL142))= ANSWER 18.64% 146 147 148 149 150 ... DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLO Q DIR right clean YIELD bond portfolio WACC RESI DIV POLICY NAME ...