-Refer to Exhibit T13.1. Assume the international parity conditions DO NOT hold . Expected future spot rates are: E(S₁^£/€) = £2.060/€, E(S₂^£/€) = £2.100/€, and E(S₃^£/€) =£2.220/€. Calculate NPV^£ by converting euros to pounds at the expected future spot rates and discounting in pounds. Assume S₀^£/€ = £2/€ and i^£ = 7%.

Question

-Refer to Exhibit T13.1. Assume the international parity conditions DO NOT hold . Expected future spot rates are: E(S<sub>1</sub><sup>£/€</sup>) = £2.060/€, E(S<sub>2</sub><sup>£/€</sup>) = £2.100/€, and E(S<sub>3</sub><sup>£/€</sup>) =£2.220/€. Calculate NPV<sup>£</sup> by converting euros to pounds at the expected future spot rates and discounting in pounds. Assume S<sub>0</sub><sup>£/€</sup> = £2/€ and i<sup>£</sup> = 7%. A) NPV<sup>£</sup> = £52,464.96 B) NPV<sup>£</sup> = £52,978.31 C) NPV<sup>£</sup> = £53,015.25 D) NPV<sup>£</sup> = £53,716.36 E) NPV<sup>£</sup> = £54,142.84

Quizplus · Accepted Answer

The Answer of -Refer to Exhibit T13.1. Assume the international parity conditions DO NOT hold . Expected future spot rates are: E(S₁^£/€) = £2.060/€, E(S₂^£/€) = £2.100/€, and E(S₃^£/€) =£2.220/€. Calculate NPV^£ by converting euros to pounds at the expected future spot rates and discounting in pounds. Assume S₀^£/€ = £2/€ and i^£ = 7%.