Use the Information for the Question(s) Below

question 43

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 dollar cash inflow computed by first converting the £ into dollars and then discounting the dollars?

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

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Definitions:

Psychosexual Stage

A concept in Freudian psychoanalysis that refers to the different stages of a child’s development, each characterized by a focus on pleasure from a specific body area.

Adolescents

Young people in the transitional stage of physical and psychological development that generally occurs during the period from puberty to legal adulthood.

Defense Mechanism

Psychological strategies unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Displacement

In psychology, it's a defense mechanism where an individual shifts negative emotions or impulses from the original source to a less threatening person or object.