Use the information for the question(s)below.
You are a U.S.investor who is trying to calculate the present value of £5 million cash inflow that will occur one year in the future.The spot exchange rate is S = $1.8839/£ and the forward rate is F1 = $1.8862/£.The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to:

Question

Quizplus · Accepted Answer

To convert £5 million into dollars, we'll use the spot exchange rate:

£5,000,000 * $1.8839/£ = $9,419,500

Now we need to find the present value of this cash inflow using the appropriate dollar discount rate.

PV = $9,419,500 / (1 + 0.0532) = $8,954,615

Therefore, the correct answer is B.

Use the Information for the Question(s)below