Decompose the Return an American Would Have If He Had

question 36

Multiple Choice

Decompose the return an American would have if he had bought a German stock at €100 per share and sold it one year later at €120. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.55 = €1.

• A)24% total return; 20% asset return; 4% attributable to exchange rate changes
• B)20% total return; 16.77% asset return; 3.23% attributable to exchange rate changes
• C)24% total return; 20% asset return; 3.33% attributable to exchange rate changes
• D)None of the above

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Definitions:

United States

A country primarily located in North America, consisting of 50 states, a federal district, five major self-governing territories, and various possessions.

Gini Coefficient

A measure of inequality within a population, expressed as a number between 0 and 1, where 0 signifies perfect equality and 1 signifies maximum inequality.

Decades

Periods of ten years.

Income Inequality

The unequal distribution of earnings among individuals or households within a society or region.