You Want to Invest in a Riskless Project in Sweden

question 66

Multiple Choice

You want to invest in a riskless project in Sweden that has an initial cost of SKr428,000 and is expected to produce cash inflows of SKr231,000 a year for 2 years.The project will be worthless after 2 years.The expected inflation rate in Sweden is 1.7 percent while it is 2.6 percent in the United States.A risk-free security is paying 3.8 percent in the United States.Assume the current spot rate is $1 = SKr7.51.What is the net present value of this project in U.S dollars using the foreign currency approach?

• A)$31,811.70
• B)$3,799.21
• C)$1,951.11
• D)$93,684.44
• E)$110,043.00

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Definitions:

Sound Mind

A state of mental capacity in which an individual can effectively understand and manage their affairs.

Lucid Period

A temporary phase of clear-mindedness or rationality that interrupts a longer period of impaired mental state.

Will Substitutes

Non-probate methods for transferring assets upon death, such as trusts, joint tenancies, and payable-on-death accounts, designed to avoid the probate process.

Joint Tenancy

A form of co-ownership where two or more individuals hold equal shares in a property, with the right of survivorship.