Mr. James K. Silber, an avid international investor, only sold a share of Rhone-Poulenc, a French firm, for FF50. The share was bought for FF42 year ago. Now the exchange rate is FF5.80 per U.S. dollar and was FF6.65 per dollar a year ago. Mr. Silber attained FF4 as a cash dividend instantly before the share was sold. Calculate the rate of return on this investment in terms of U.S. dollars.
Mr. Silber ought to have paid $6.32 (=42/6.65) for share of Rhone-Poulenc a year ago. While the share was liquidated, he ought to have received $9.31 (=54/5.8). Thus, the rate of return in dollar terms is:
R($) = [(9.31-6.32)/6.32]x100 = 47.31%.