International investment returns Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock

Question:

International investment returns Joe Martinez, a U.S. citizen living in Brownsville, Texas, invested in the common stock of Telmex, a Mexican corporation. He purchased 1,000 shares at 20.50 pesos per share. Twelve months later, he sold them at 24.75 pesos per share. He received no dividends during that time.

a. What was Joe’s investment return (in percentage terms) for the year, on the basis of the peso value of the shares?

b. The exchange rate for pesos was 9.21 pesos per US$1.00 at the time of the purchase. At the time of the sale, the exchange rate was 9.85 pesos per US$1.00. Translate the purchase and sale prices into US$.

c. Calculate Joe’s investment return on the basis of the US$ value of the shares.

d. Explain why the two returns are different. Which one is more important to Joe? Why?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...