Chapter 15 #2/3

Mr. James K. Silber, an avid international investor, just sold a share of Nestl, a Swiss firm, for SF5,080. The share was bought for SF4,600 a year ago. The exchange rate is SF1.60 per U.S. dollar now and was SF1.78 per dollar a year ago. Mr. Silber received SF120 as a cash dividend immediately before the share was sold. Compute the rate of return on this investment in terms of U.S. dollars.

3. In the above problem, suppose that Mr. Silber sold SF4,600, his principal investment amount, forward at the forward exchange rate of SF1.62 per dollar. How would this affect the dollar rate of return on this Swiss stock investment? In hindsight, should Mr. Silber have sold the Swiss franc amount forward or not? Why or why not?