Answer:
a) 31.25%
b) 74.83%
Explanation:
You need to take below steps in the investment circle:
(1) You have $100,000 to invest and the price of the ADR is $100; so you can buy 1,000 ADRs = $100,000/ $100
(2) It takes 4 ADRs to buy 1 ordinary share; so with 1,000 ADRs you can buy 250 ordinary shares = 1,000 ADRs / 4 ADRs
Six months from today, price for 1 ordinary share is KRW525,000 and the exchange rate is KRW1,000/$.
(3) If you sell 250 ordinary shares, you can get KRW131,250,000 = 250 shares x KRW525,000
(4) Then you sell KRW131,250,000 to get $131,250 = KRW131,250,000/ exchange rate KRW1,000/$
So the profit after 6 months is $31,250 = $131,250 - $100,000
The rate of return is 31.25% = $31,250/$100,000 x 100%
Suppose 3 ADRs buy 1 ordinary share, then some steps changed as below:
(1) same as above
(2) you can buy 333 ordinary shares = 1,000 ADRs / 3 ADRs
(3) If you sell 333 ordinary shares, you can get KRW174,825,000 = 333 shares x KRW525,000
(4) Then you sell KRW174,825,000 to get $174,825 = KRW174,825,000/ exchange rate KRW1,000/$
So the profit after 6 months is $74,825 = $174,825- $100,000
The rate of return is 74.83% = $74,825/$100,000 x 100%
