Use the Information for the Question(s) Below

question 36

Multiple Choice

Use the information for the question(s) below.
You are a U.S. 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/£ and the forward rate is F₁ = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-You are a U.S. investor who is trying to calculate the present value (PV) of £15 million cash inflow that will occur one year from now. The spot exchange rate is $1.5742/£ and the forward rate is F₁ = $1.5682/£. The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate £ discount rate is 1.45%. What is the present value of the £ cash inflow computed by first discounting the £ and converting them into dollars?

• A) $23,275,505
• B) $23,186,792
• C) $23,367,640
• D) $23,278,575

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Definitions:

Pulmonary Trunk

A major blood vessel that carries blood from the heart to the lungs for oxygenation.

Abdominal Aorta

The portion of the aorta that passes through the abdomen, supplying blood to the abdominal organs.

External Iliac Artery

A major artery that supplies blood to the lower limbs, originating from the common iliac artery and continuing as the femoral artery.

Iliolumbar Artery

A branch of the internal iliac artery that supplies blood to the iliopsoas muscle and parts of the lumbar spine.