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Kelli Phelps
on Dec 09, 2024

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You are analyzing a project with an initial cost of 150,000. The project is expected to return 25,000 the first year, 55,000 the second year and 110,000 the third and final year. The current spot rate is 0.5086. The nominal risk-free return is six % in the U.K. and 6.5 % in the U.S. The return relevant to the project is 12 % in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?

A) -$8,211
B) -$7,465
C) $8,505
D) $8,730
E) $8,947

Uncovered Interest Rate Parity

A theory suggesting that the difference in interest rates between two countries is equal to the expected change in exchange rates between those countries' currencies.

Nominal Risk-Free Return

The return on an investment with zero risk in nominal terms, not adjusting for inflation.

Spot Rate

The current market price at which a particular asset, such as currency, commodity, or security, can be bought or sold for immediate settlement.

  • Compute the net present value (NPV) of overseas projects in various currencies.
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JH
Jenny HaynesDec 13, 2024
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