Use the information for the question(s)below.
You are a Canadian investor who is trying to calculate the present value (PV)of £5 million cash inflow that will occur one year in the future.The spot exchange rate is S = 1.8839 CAD/GBP and the forward rate is F 1 = 1.8862 CAD/GBP.The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate GBP discount rate is 5.24%.
-The present value (PV)of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to:

Question

Quizplus · Accepted Answer

First, we need to convert the £5 million cash inflow into Canadian dollars using the spot exchange rate:
£5,000,000 x 1.8839 CAD/GBP = $9,419,500 CAD
Next, we need to discount this cash inflow using the appropriate CAD discount rate:
PV = $9,419,500/(1+0.0532) = $8,954,615 CAD
Therefore, the correct answer is choice B.

Use the Information for the Question(s)below