Please show all steps. Thanks Consider a Investment manager who is contemplating

Question

Please show all steps. Thanks

Consider a Investment manager who is contemplating investments in USA and Japan. Manager has 1 Million USD to invest He invests half of it in US stock market, 0.2 Million USD in Japanese risk free account and remaining 0.3 Million in Japanese stock markets. Current exchange rate is 110 JPY/USD. Over the year, US stock Index (say S&P; 500) appreciated from 1800 to 1900 level while Japanese stock index (Nikkei 225) decreased from 15200 to 14900 levels. Japanese risk free rate were 3% per annum. The year end exchange rate is 105 JPY/USD (a) Compute the Dollar Value of the portfolio at the year end (b) Compute the "Dollar returns" on the portfolio. (c) How much of Dollar returns were due to currency movements? (com- pute exactly)

Explanation / Answer

Amount Invested in Japanese risk free bond = 0.2M*110 = 22M JPY
Amount Invested in Japanese stock market = 0.3M*110 = 33M JPY
Amount Invested in US stock market = 0.5M USD

A

Returns from:
Japanese risk free bond = 22M*3% = 0.66M JPY
Japanese stock market = (14900-15200)/15200*33M = -0.65M JPY
US stock market = (1900-1800)/1800*0.5M = 0.028M USD

Value of Japanese Investments in JPY = 22M + 0.66M + 33M

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