Suppose a U.S. investor wishes to invest in a British firm currently selling for 20 per share. The investor has $8,000 to invest, and the current exchange rate is $2/. Consider three possible prices per share at 15, 20, and 25 after 1 year. Also, consider three possible exchange rates at $1.7/, $2/, and $2.3/ 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.

Ask for:

1.Standard deviation of pound-denominated return
2.Standard deviation of dollar-denominated return