Answer:
4.76%
Explanation:
The computation of dollar rate of return is shown below:-
Initial investment in USD = 100,000
Converted to Japanese Yen at Yen 100 ÷ 1 USD = 10,000,000
Stock Price in Yen = 100
Number of shares purchased = 100,000
At year end sale price at 110 = 11,000,000
Out of this proceed, the investor will sold 10,000,000 Yen as per Forward contract at 105 Yen/USD and rest 1,000,000 at 110 Yen/USD
Dollar Proceed Equivalent USD
10,000,000 Yen at 105 Yen/USD 95,238
(10,000,000 ÷ 105)
1,000,000 Yen at 110 Yen/USD 9,091
(1,000,000 Yen ÷ 110)
Dollar proceed 104,329
Return as a Percentage = ((Sale value - Purchase value) ÷ Purchase value) × 100
= (($95,238 - $90,909) ÷ $90,909) × 100
= $4,329 ÷ $90,909 × 100
= 4.76%
