Calculate the rate of return, Financial Management

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A Life Insurance Company invested $10,000,000 in pure-discount U.S. bonds in May 1995 while the exchange rate was 80 yen per dollar. The insurance company liquidated the investment one year later for $10,650,000. The exchange rate turned out to be 110 yen per dollar at the time of liquidation. Calculate the rate of return did Life realize on this investment in yen terms?

Solution: Life Insurance Company spent ¥800,000,000 to buy $10,000,000 which was invested in U.S. bonds. The liquidation value of this investment is ¥1,171,500,000 that is acquired from multiplying $10,650,000 by ¥110/$. The rate of return in terms of yen is:

   [(¥1,171,500,000 - ¥800,000,000)/ ¥800,000,000]x100 = 46.44%.


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