You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Canada. The inflation rate is 3 percent in the U.S. and 2 percent in Canada. The current exchange rate is C$1 = $.72. How much will the payment four years from now be worth in U.S. dollars?

Question

Quizplus · Accepted Answer

The future value of the payment in Canadian dollars is C$100,000. To find its present value in U.S. dollars, we discount it using the Canadian risk-free rate of 4%: C$100,000 / (1.04)^4 = C$85,446. Then, convert to U.S. dollars using the current exchange rate: C$85,446 * $0.72 = $61,520. Finally, adjust for the U.S. risk-free rate of 3% over four years: $61,520 * (1.03)^4 = $69,191.

You Are Expecting a Payment of C$100,000 Four Years from Now