Suppose a U.S. investor wishes to invest in a British firm currently selling for 40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/. Consider three possible prices per share at 35, 40, and 45 after 1 year. Also, consider three possible exchange rates at $1.80/, $2/, and $2.20/ after 1 year.

Calculate the standard deviation of both the pound- and dollar-denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely

Standard deviation of pound-denominated return Standard deviation of dollar-denominated return