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You are a U.S. investor who is trying to calculate the present value of a ?5 million cash inflow

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You are a U.S. investor who is trying to calculate the present value of a ?5 million cash inflow that will occur 1 year in the future. The spot exchange rate is S = $1.25/? and the forward rate is F1 = $1.215/?. You estimate that the appropriate dollar discount rate for this cash flow is 4% and the appropriate euro discount rate is 7%.;a. What is the present value of the ?5 million cash inflow computed by first discounting the euro and then converting it into dollars?;b. What is the present value of the ?5 million cash inflow computed by first converting the cash flow into dollars and then discounting?;c. What can you conclude about whether these markets are internationally integrated, based on your answers to parts (a) and (b)?;Additional Requirements;Min Pages: 1;Level of Detail: Show all work;Other Requirements: This course is advance managerial finance.

 

Paper#29847 | Written in 18-Jul-2015

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