Cash flows-what is the net rate of return

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Reference no: EM13723836

A U.S. investor buys 100 shares of Heineken listed in Amsterdam for 40 Euros. She goes through a U.S. broker, and the current exchange rate is 1 euro = 1.1 U.S. dollars. Her total cost is $4,400, or $44 per share of Heineken (40 × 1.1 $ per €). Three months later, a gross dividend of €2 is paid (15 percent withholding tax), and she decides to sell the Heineken shares. Each share is now worth 38 Euros, and the current exchange rate is 1 euro = 1.2 U.S. dollars because the euro has sharply risen against the dollar. The same exchange rate applied on the dividend payment date. There is a tax treaty between the US and Netherlands.

a. What are the cash flows received in U.S. dollars?

b. Assume that her personal U.S. tax rate is 20% on both capital gain and income. What is the net rate of return?

Reference no: EM13723836

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