A US investor had purchased a condominium in Israel a year ago for ILS 400,000 when the
spot rate for the Shekel was $0.32/ILS. She just sold the condo for ILS 500,000. The exchange rate
today is $0.29/ILS. What rate of return did the investor earn? What portion of
the rate of return is due to exchange rate changes?
What should she have sold the condo for to generate a return of 8% given the current exchange rate?
b. Explain the relationship below.
Var(Ri$) = Var(Ri) + Var(ei) + 2Cov(Ri,ei) + DVar