1. A Swedish investor bought 200 shares of IBM on January 1 on the New York Stock Exchange at $120. The exchange rate was SEK/USD = 7.00. Over the year, the investor has received a gross dividend of$5per share. There is a 15% withholding tax levied by the United States. The exchange rate at the time of dividend payment was SEK/USD =7.2. By December 31, the investor resells the IBM shares at$125, but the exchange rate has dropped suddenly to SEK/USD =6.75. Ignoring commissions, what is the rate of return on the investment, in dollars and kronas, gross and net of taxes? The Swedish investor is taxed at 50% on income and 15% on capital gains; the U.S. withholding tax can be used as a tax credit in Sweden.

Swedish U.S Kronas Dollars Final Value = 25000 *(6.75) = 168,750 = 125*(200) = 25,000 Initial investment = 24000 *(7) = 168,000 = 120*(200) = 24,000 Capital gain = 168,750 - 168,000 = 750 = 25,000 - 24,000 = 1,000 Gross dividend = 1000*(7.2) = 7,200 = 200*(5) = 1,000 Withholding tax = 7200*(15%) = 1,080 = 1000*(15%) = 150 Dividend received = 7200 - 1080 = 6,120 = 1000 - 150 = 850 Income Tax = 7200 *(50%) = 3,600 Capital Gain Tax = 750 *(15%) = 112.5 Gross Return Net Return