You are expecting a payment of C$60,000 three years from now. The risk-free rate of return is 4.3 percent in the U.S. and 4.8 percent in Canada. The inﬂation rate is 3.7 percent in the U.S. and 4.1
Percent in Canada. Suppose the current exchange rate is C$1 = $.9489. How much will the payment
Three years from now be worth in U.S. dollars?

Question

Quizplus · Accepted Answer

First, we need to determine the present value of the payment in Canadian dollars. We can use the formula PV = FV/(1+r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods. 
PV = 60,000/(1+0.048)^3 = C$51,209.65

Next, we need to convert this value to U.S. dollars using the exchange rate. 
C$51,209.65 x $0.9489/C$1 = $48,588.55

Finally, we need to adjust for inflation in the U.S. over the three-year period. We can use the formula FV = PV x (1+i)^n, where FV is the future value, PV is the present value, i is the inflation rate, and n is the number of periods. 
FV = $48,588.55 x (1+0.037)^3 = $56,088.02

Therefore, the payment three years from now will be worth $56,088 in U.S. dollars. The answer is D.

You Are Expecting a Payment of C$60,000 Three Years from Now