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