1. Suppose a U.S. investor plans to invest in a U.K. firm with stock price currently selling for 40 pounds per share. The investor has a budget of $10,000 and the current exchange rate is $2 / pound.

1. How many shares can this investor buy?

2. Fill in the following table for rates of return after 1 year in each of the 9 scenarios.

3. When is the dollar-denominated return equal to the pound-denominated return?

4. If all these 9 scenarios are equally likely, calculate the standard deviation for both

   pound-denominated & dollar-denominated rates of return.

   $1.80/pound $2/pound $2.2/pound

   Pound 35 Pound 40 Pound 45

3. a. b. c. d. Suppose a U.S. investor plans to invest in a U.K. firm with stock price currently selling for 40 pounds per share. The investor has a budget of $10,000 and the current exchange rate is $2 / pound. How many shares can this investor buy? Fill in the following table for rates of return after 1 year in each of the 9 scenarios. When is the dollar-denominated return equal to the pound-denominated return? If all these 9 scenarios are equally likely, calculate the standard deviation for both pound-denominated & dollar-denominated rates of return. Dollar-denominated return for Year-end Exchange Rate Price per share Pound- (pounds) denominated return (%) $1.80/pound $2/pound $2.2/pound Pound 35 Pound 40 Pound 45