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

To find the future value in USD, first calculate the future exchange rate using the relative purchasing power parity, which considers the inflation rates: Future exchange rate = 375 * (1 + 0.05)^5 / (1 + 0.02)^5. Then, convert the future PLN payment to USD using this rate: 400,000 / Future exchange rate. This results in approximately $101,490.

You Are Considering a Project in Poland Which Has an Initial