I just got confused with one of the solutions from schweser. Following is the question. An EU investor has invested in Japanese stocks. Following are the stats. Return in yen terms - 12% Yen has appreciated by 5% relative to EUR Calculate the return on stock in EUR terms? I understand this is a very trivial question, but belive there is some problem with schweser answer, so wanted to check.
(1+12%)*(1+5%)-1=17.6%
Is the return in Yen terms -12%?
Got it, was confused with the effect of appreciation of yen (+/-). Believe need some rest. Thanks.
u lose 12 in yen, than gain 5 on currency, so total of 7% lost (-7%)
The answer that I got was 6.4% I thought that if Yen appreciates, the French investor loses. What is the correct answer and explanation. Also, is the return in yen terms -12% or +12%?
-12% + 5% + 5%(-12%)= -8%
sorry, excel rounded: -7.60%. this would be the domestic (euro) return
I think Krochellis right, forgot to include the fx return on the loss.
K-rock got it right : )
KRochelli Wrote: ------------------------------------------------------- > -12% + 5% + 5%(-12%)= -8% Yep, or (for me it’s more intuitive): 1-[(1-0.12)*(1+.05)] = 0.076
yo philly- k-rock is actually my nickname. nice!
PhillyBanker Wrote: ------------------------------------------------------- > K-rock got it right : ) Nope. Maraticus got it right. (The return is 12%, not -12% >> from Schweser Vol 2 1AM) Rdc = Rfc + S + (S)*(Rfc) 0.12 + 0.05 + (0.05)*(0.12) = 17.6%
How is that possible McLeod? The return in Yen terms is -12%. Please explain the logic.
OP transcribed the question incorrectly (This is question #5 on the Exam 1 AM Session Schweser Practice Exams vol 2). He probably meant "Return in yen terms = 12% ". But if the return in Yen terms was in fact -12%, K-rock would be right.
Ahhh, ok. K-rock - it just flows, I hereby pronounce K rock to be your new AF handle : )
Sorry for the confusion, as McLeod pointed out, I meant “Return in yen terms = 12%”.