Question
Suppose a U.S. investor wishes to invest in a British firm currently selling for 64 per share. The investor has $12,800 to invest, and the
Suppose a U.S. investor wishes to invest in a British firm currently selling for 64 per share. The investor has $12,800 to invest, and the current exchange rate is $2/. Consider three possible prices per share at 60, 65, and 70 after 1 year. Also, consider three possible exchange rates at $1.60/, $2/, and $2.40/ 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.)
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