A Chapter 21, 5

5. Adjusting returns for exchange rates (LO2) An investor in the United States bought a one-year Brazilian security valued at 195,000 Brazilian reals. The U.S. dollar equivalent was 100,000. The Brazilian security earned 16 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the time period ($0.51 to $0.46). After transferring the funds back to the United States, what was the investors return on her $100,000? Determine the total ending value of the Brazilian investment in Brazilian reals and then translate this Brazilian value to U.S. dollars. Afterward, compute the return on the $100,000.

Initial value (1 + Interest rate)

195,000 1.16 = 226,200 Brazilian reals

Brazilian reals .46 = U.S. dollars equivalent

226,200 .46 = 104,052 U.S. dollars equivalent

4,052*/$100,000 = 4.052% rate of return

*$104,052 $100,000 = $4,052 change

Please include an Excel solution for the problem.