Calculate the Euro-Based Return an Italian Investor Would Have Realized

question 59

Essay

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock. One year after investment, the stock pays a £1 dividend, and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound, although he sold £10,000 forward at the forward rate of €1.28 per pound.
Spot exchange rates at the start and end of the year are shown in the table.

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Definitions:

Regression Model

A regression model is a statistical tool used to estimate the relationships among variables, typically between a dependent variable and one or more independent variables.

Multicollinearity

Multicollinearity occurs when independent variables in a regression model are highly correlated, potentially distorting the results and making coefficients unreliable.

Standard Errors

Measures that provide an estimation of the variability or precision of a sample statistic as an estimate of a population parameter.

Slope Coefficients

In linear regression, the numerical values that multiply the predictor variables, representing the change in the response variable for a one-unit change in the predictor.