Suppose a U.S. investor wishes to invest in a British firm currently selling for
ID: 2629815 • Letter: S
Question
Suppose a U.S. investor wishes to invest in a British firm currently selling for £34 per share. The investor has $6,800 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £30, £35 and £40 after 1 year. Also, consider three possible exchange rates at $1.7/£, $2/£ and $2.3/£ 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. (Round your answers to 2 decimal places. Do not round intermediate calculations. Omit the "%" sign in your response.)
Standard deviation of pound-denominated return % Standard deviation of dollar-denominated return %Explanation / Answer
$6800/$2 =
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