You are considering a project in Poland which has an initial cost of 250,000PLN.The project is expected to return a one-time payment of 400,000PLN 5 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 percent in the U.S.and 5 percent in Poland.Currently, you can buy 375PLN for 100USD.How much will the payment 5 Years from now be worth in U.S.dollars?

Question

Quizplus · Accepted Answer

The correct answer is A. The payment 5 years from now will be worth $101,490 in U.S. dollars.The present value of the payment 5 years from now is 400,000PLN / (1 + 0.04)^5 = 324,675PLN.To convert this to U.S. dollars, we divide by the exchange rate of 375PLN / 100USD to get 324,675PLN / 375PLN / 100USD = $101,490.

You Are Considering a Project in Poland Which Has an Initial