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Problem set 7

# Problem set 7 - BNFN 416 Investment Management Problem set...

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BNFN 416 Investment Management Problem set 7 (Reference chapter 18) Q1) Suppose a U.S investor wishes to invest in a British firm currently selling for £40 per share. The investor has \$ 10000 to invest, and the current exchange rate is \$2/£. a) How many shares can the investor purchase? b) Calculate the pound-dominated returns in the table below. Price per Share (£) Pound- Denominated Return (%) £35 £40 £45 Q2) a) Based on the information given in question 1, calculate the dollar-dominated returns in the table below. b) When is the dollar-dominated return equal to the pound-dominated return? Price per Share (£) Dollar-Denominated Return (%) for Year-End Exchange Rate \$1.80/£ \$2.00/£ \$2.20/£ £35 £40 £45 Q3) Based on the information given in question 1, and also suppose the investor sells forward £ 5000 at a forward exchange rate \$ 2.10/£. 1

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a) Calculate Dollar Value of Stock at Given Exchange Rate in the table below. Dollar Value of stock (%) At given Exchange Rate \$1.80/£ \$2.00/£ \$2.20/£ £35 £40 £45 b) Calculate the profits on forward exchange rate Dollar Value of stock
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