Question
Suppose a U.S. investor wishes to invest in a British firm currently selling for 50 per share. The investor has $12,000 to invest, and the
Suppose a U.S. investor wishes to invest in a British firm currently selling for 50 per share. The investor has $12,000 to invest, and the current exchange rate is $2/. Consider three possible prices per share at 48, 53, and 58 after 1 year. Also, consider three possible exchange rates at $1.8/, $2/, and $2.2/ 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. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
The standard deviation of pound-denominated return | % |
The standard deviation of dollar-denominated return | % |
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