You are considering a project in India which has an initial cost of 250,000RS.The project is expected to return a one-time payment of 400,000RS five years from now.The risk-free rate of return is 3 percent in the U.S.and 4 percent in India.The inflation rate is 2 percent in the U.S.and 5 percent in India.Currently,you can buy 5,500RS for $100.How much will the payment five years from now be worth in U.S.dollars?

Question

Quizplus · Accepted Answer

E(S₅)= (5,500RS/$100)× [1 + (.04 - .03)]⁵ = 57.8056RS400,000RS × ($1/57.8056RS)= $6,920

You Are Considering a Project in India Which Has an Initial