You are expecting a payment of Can$150,000 four years from now.The risk-free rate of return is 3.9 percent in the United States and 4.6 percent in Canada.The inflation rate is 3 percent in the United States and 4.2 percent in Canada.Assume the current exchange rate is Can$1 = $.87.How much will the payment four years from now be worth in U.S.dollars?

Question

Quizplus · Accepted Answer

First, we need to calculate the future value of Can$150,000 in 4 years with the given inflation rates:

- In the US: FV = 150,000 x (1+0.03)^4 = Can$175,944
- In Canada: FV = 150,000 x (1+0.042)^4 = Can$198,822

Next, we need to convert the Canadian dollars to US dollars using the given exchange rate:

- In the US: Can$175,944 x 0.87 = $152,937
- In Canada: Can$198,822 x 0.87 = $172,944

Since we are asked for the value in US dollars, we choose the lower amount, which is option B: $126,909.

You Are Expecting a Payment of Can$150,000 Four Years from Now.The