You are considering a project in Poland which has an initial cost of 275,000PLN. The project is expected to return a one-time payment of 390,000PLN four years from now. The risk-free rate of return is 4.5 percent in the U.S. and 3 percent in Poland. The inflation rate is 4 percent in the U.S. and 2 percent in Poland. Currently, you can buy 277PLN for 100USD. How much will the payment of 390,000PLN be worth in U.S. dollars four years from now?
E(S4) = (277PLN/100USD) × [1 + (0.03 - 0.045)]4 = 2.607502245PLN
Payment = 390,000PLN ($1/2.607502245PLN) = $149,568 |
75.
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You are expecting a payment of 450,000PLN three years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Poland. The inflation rate is 2.5percent in the U.S. and 3 percent in Poland. Currently, you can buy 277PLN for 100USD. How much will the payment three years from now be worth in U.S. dollars?
E(S3) = (277PLN/100USD) × [1 + (0.04 - 0.03)]3 = 2.85393377PLN
450,000PLN × ($1/2.85393377PLN) = $157,677 |
76.
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You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $0.8273. How much will the payment four years from now be worth in U.S. dollars?
E(S4) = (C$1/$0.8273) × [1 + (0.041 - 0.038)]4 = C$1.223321779
C$100,000 × ($1/C$1.223321779) = $81,745 |
77.
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Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869. The expected inflation rate in Norway is 6 percent and in the U.S. it is 3.1 percent. A risk-free asset in the U.S. is yielding 4 percent. What risk-free rate of return should you expect on a Norwegian security?
0.04 - 0.031 = RFC - 0.06; RFC = 6.9 percent
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