Exercise: Answer the following multiple choice problems (including your calculus):,,1. Emerald Energy is an oil exploration and production company that trades on the London stock market. Over the past year, the stock has enjoyed a 30 percent return in pound terms, but over the same period, the exchange rate has fallen from $2.00 = £1 to $1.80 = £1. Calculate the investor’s annual percentage rate of return in terms of the U.S. dollars. ,,A. 23%,B. 43%,C. 17%,D. There is not enough information to compute the investor’s annual percentage rate of return in terms of the U.S. dollars.,,2. American Oil 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 appreciated ten percent. Calculate the investor’s annual percentage rate of return in terms of the U.S. dollars. ,,A. 20.01%,B. -.01%,C. 0%,D. There is not enough information to compute the investor’s annual percentage rate of return in terms of the U.S. dollars.,,3. The realized dollar returns for a U.S. resident investing in a foreign market will depend on the return in the foreign market as well as on the exchange rate fluctuations between the dollar and the foreign currency. ,,Calculate the variance of the monthly rate of return in dollar terms, if the variance of the foreign market’s return (in terms of its own currency) is 1.14, the variance between the U.S. dollar and the foreign currency is 17.64, the covariance is 2.34, and the contribution of the cross-product term is 0.06. ,,A. 21.16,B. 23.50,C. 23.52,D. 26.65,,4. Assume that you have invested $100,010 in Japanese equities. When purchased the stock’s price and the exchange rate were ¥100 and ¥100/$1.00 respectively. At selling time, one year after purchase, they were ¥110 and ¥110/$1.00. If the investor had sold ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00 the dollar rate of return would be: ,,A. -27.27%,B. -4.32%,C. 28.00%,D. -9.09%,E. None of the above,,5. Suppose you are a euro-based investor who just sold IBM shares that you had bought six months ago. You had invested €10,000 to buy IBM shares for $120 per share; the exchange rate was $1.55 per euro. You sold the stock for $135 per share and converted the dollar proceeds into euro at the exchange rate of $1.50 per euro. How much of the return isn’t due to the exchange rate movement? ,,A. 3.75%,B. 3.33%,C. 12.50%,D. 96.25%,,Please include all the procedures step by step in each question,,Thanks a lot
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