Exam 15: International Portfolio Investment

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock on margin with only 40% down and 60% borrowed.The stock pays a $0.30 quarterly dividend, and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar. The interest on the margin loan is 1% per year. The margin loan is denominated in dollars.

The degree of home bias varies across investors

Hedge fund advisors typically receive a "2-plus-twenty" management fee

A zero-coupon Japanese bond promises to pay ¥1,200,000 in five years. The current exchange rate is $1.00 = ¥100 and inflation is forecast at 3% in the U.S. and 2% in Japan per year for the next five years. The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars. What is the appropriate price of the bond?

Assume that you have invested $100,000 in British equities. When purchased the stock's price and the exchange rate were £50 and £0.50/$1.00 respectively. At selling time, one year after purchase, they were £45 and £0.60/$1.00. If the investor had sold £50,000 forward at the forward exchange rate of £0.55/$1.00. The dollar rate of return would be:

The return and variance of return to a U.S. dollar investor from investing in individual foreign security i are given by:

The "Sharpe performance measure" (SHP) is

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock using 50% margin. One year after investment, the stock pays a £1 dividend, and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound. The interest on the margin loan is 1% per year. The margin loan was denominated in pounds.

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock. One year after investment, the stock pays a £1 dividend, and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound, although he sold £8,800 forward at the forward rate of €1.28 per pound.

Which of the following is a true statement?

Foreign equities as a proportion of U.S. investors' portfolio wealth rose from about 1 percent in the early 1980s to about ___ by 2012.

Assume that you have invested $100,000 in Japanese equities. When purchased the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively. At selling time, one year after purchase, they were ¥110 and ¥110/$1.00. The dollar rate of return would be:

With regard to the OIP,

The record of investing in U.S.-based international mutual funds

Recent studies show that when investors control exchange risk by using currency forward contracts to hedge

Bema Gold is an exploration and production company that trades on the Toronto stock exchange. Assume that when purchased by an international investor the stock's price and the exchange rate were CAD5 and CAD1.0/USD0.72 respectively. At selling time, one year after the purchase date, they were CAD6 and CAD1.0/USD1.0. Calculate the investor's annual percentage rate of return in terms of the U.S. dollars if the investor had sold CAD5, the principal investment amount at the same time that the stock was purchased, forward at the forward exchange rate of CAD1/USD.80.

The stock market of country A has an expected return of 5%, and a standard deviation of expected return of 8%. The stock market of country B has an expected return of 15% and a standard deviation of expected return of 10%. Assume that the correlation of expected return between security A and B is 0.2. Calculate the standard deviation of expected return of a portfolio that has half of its money invested in A and half in B.

A zero-coupon French bond promises to pay €100,000 in five years. The current exchange rate is $1.50 = €1.00 and inflation is forecast at 3% in the U.S. and 2% in the euro zone per year for the next five years. The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars. What is the appropriate price of the bond?

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock. One year after investment, the stock pays a £1 dividend, and sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar, although he sold $17,600 forward at the forward rate of €0.65 per dollar.

Assume that you have invested $100,000 in Japanese equities. When purchased the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively. At selling time, one year after purchase, they were ¥110 and ¥110/$1.00. If the investor had sold ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00 the dollar rate of return would be: