Question

"XYZZ ADR represents 10% of the value of an XYZZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the U.S. Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP, with payment made semi-annually. The XYZZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the NYSE, how much will the customer receive in each dividend payment?"

Answer 1

Answer:

$8,400

Explanation:

XYZZ ADR = 10% XYZZ ordinary share

Current price of ordinary shares trade = 400 British pounds

Pounds rate against the dollar = $1.40

Annualized Dividend pay = 12 pounds paid semianually

Dividend to be received on the purchase of $560,000 worth of ADR

Therefore ;

To calculate worth of XYZZ ADR

Dollar value of £400

400 * 1.4 = $560

10% of $560 = 10* 560 = $56 per ADR

Therefore, semiannual Dividend payed :

£12 / 2 = £6 every 6 months ; which is equivalent to (£6 * 10%) = £0.6 per ADR

Equivalent dollar value :

0.6 * $1.4 = $0.84 per ADR

AMOUNT OF ORDER TO BE PLACED / price per ADR

$560,000 / $56 = 10,000 shares

Dollar value of Dividend payed per share = $0.84

Dividend customer will receive :

10,000 * $0.84 = $8,400