An investor in the United States bought a one-year New Zealand security valued at 200,000 New Zealand dollars. The U.S. dollar equivalent was $100,000. The New Zealand security earned 15 percent during the year, but the New Zealand dollar depreciated 5 cents against the U.S. dollar during the time

Question

An investor in the United States bought a one-year New Zealand security valued at 200,000 New Zealand dollars. The U.S. dollar equivalent was [latex]\$ 100,000[/latex]. The New Zealand security earned 15 percent during the year, but the New Zealand dollar depreciated 5 cents against the U.S. dollar during the time period (\$ [latex]0.50 /\mathrm{NZD}[/latex] to [latex]\$ 0.45 / \mathrm{NZD}[/latex] ). After transferring the funds back to the United States, what was the investor's return on his [latex]\$ 100,000[/latex] ? Determine the total ending value of the New Zealand investment in New Zealand dollars and then translate this value to U.S. dollars by multiplying by [latex]\$ 0.45[/latex]. Then compute the return on the [latex]\$ 100,000[/latex].

Accepted Answer

Initial value [latex] imes(1+ ext { earnings})[/latex]

[latex]\begin{aligned} 200,000 imes 1.15 &=230,000 ext { New Zealand dollars } \ ext { New Zealand dollars } imes 0.45 &= ext { U.S. dollars equivalent } \ 230,000 imes 0.45 &=103,500 ext { U.S. dollars equivalent } \\frac{\$ 103,500}{\$100,000} imes 100=103.50 &=3.50 \% \end{aligned}[/latex]

Question 21.2: An investor in the United States bought a one-year New Zeala...

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