Reference no: EM132382979

The current and anticipated exchange rate for the Euro to dollar is as follows:

February 1, 2019:    1 Euro = $1.11

February 1, 2029:    1 Euro = $1.54

On February 1, 2019 you exchanged $10,000 to Euros and placed it in a Berlin bank that earns 3% annually.  Each subsequent year (2019 to 2029), on February 1, you convert the interest (in Euros) for the previous year to dollars and spend the money in the United States.

1. How many Euros did you originally place in the Berlin bank on February 1, 2019?
2. How much interest in Euros do you earn each year?
3. On February 1, 2029 you convert the interest you earned during the previous year (February 1, 2028 to February 1, 2029) from Euros to dollars.  How many dollars do you have?
4. Based on your previous answer, what was the actual percent return that you earned on interest during the year, based on your original $10,000 investment, from February 1, 2028 to February 1, 2029?  (this would be calculated as dollars in interest divided by $10,000)
5. On February 1, 2029 you decide to withdrawal your original deposit (not interest-you already withdrew all your interest) from the Berlin bank and converted it to dollars.  How many dollars do you have? (Euros exchanged into dollars)
6. Based on the previous answer, what was the compound (or geometric) average annual percent return over the ten years on your original investment from February 1, 2019 to February 1, 2029? That is, you originally deposited $10,000 now you have a larger amount (computed in e above).  What was the annual percent growth?